Become a MacRumors Supporter for $50/year with no ads, ability to filter front page stories, and private forums.
First of all, check the format of the thumb drive, as well as its partition scheme. In order for this to work, the drive MUST be Mac OS Extended (Journaled) format with a GPT (GUID Partition Table) partitioning scheme (assuming you'll be booting the installation on an Intel Mac, since PPC Macs don't support USB boot).
 
Register on MacRumors! This sidebar will go away, and you'll see fewer ads.