After all these years I now discover MS Xp to Win7 do not support multi partitions in a USB flash drive. The partitions can be created in Linux but the MS systems only mount the first one.
Any Vista and Win7 installation DVD can be copied onto a flash drive. By doing a "bootsect.exe /nt60 f:" will make the f: drive, with the installation files inside, "chainloadable" by Grub. There is nothing to it except all these installers work only with the first partition in the USB flash drive.
Grub1 and Grub2 can boot up these installer fine.
Actually Grub only boot up the bootsector code of that partition. The boot sector code then load boomgr. It appears if bootmgr does not find a BCD to boot an installed system it fires up the installer automatically. It is also possible the installations files has a BCD pointing to the installer.
The only way to get over to multiple partitions for MS Windows installers is to use a USB hard disk which is not looked upon as movable disk by the MS systems.