Bootable Windows 7 USB won't boot
There is an alternative method to 


create a bootable USB of Windows 7 and 
boot from it


Assuming that you have the ISO handy (if you don't, there's Digital River links here), download Unetbootin.  

Unetbootin allows you to create bootable USB drives from many Linux distributions and also ISO images. (note that Unetbootin requires admin privileges) The following image demonstrates how to manually select the ISO image. Click the "..." button to browse for your image.



To boot from your USB drive, I recommend rEFIt.  I use it myself to boot from an Ubuntu partition on my external hard drive that I use as a Time Machine on another partition.  It is useful for recognizing operating systems installed on your computer and devices connected to your computer (and their partitions).  I recommend simply burning rEFIt to a CD/DVD to boot to the Windows 7 install USB. Having had trouble trying to install it to the Mac itself (without the DVD), I usually boot to the rEFIt DVD, and continue to boot to my choice of operating system. 

(boot to a rEFIt DVD by holding down the C key [or the option key, as you stated] after you hear the chime of the startup)

I know for a fact that Unetbootin works for creating bootable Windows  install USB's (I've run them before on PC's).  I will test booting from rEFIt and update this answer when I have.