Hum, you can write a ISO image to a USB flash drive just fine. My MBA happens to have 2 USB ports and my desk has plenty of USB flash drives just lying around on it.
An ISO image is the most convenient form there is, since you can do anything with it.
Except like I said, and you ignored, you need to burn it to something to install OS X from it.
If the installer within the .ISO worked like the installer which comes from App Store, that'd be good. But it doesn't. It needs to be booted from to be installed, so it's an inconvenience. It's twice time spent, one for burning / copying it, and then for installing it.
With the App Store app, like I said and you ignored, you can directly install it anywhere you want. So it's much quicker. And since you can do anything you want with the installer App which comes from App Store as well, it's just better than an ISO in all aspects.
For years installing OS X has been a pain in the ass for me. DVD-R installs take forever, so I always kept an extra partition for it, around 5GB, just enough for the installer disc. USB install is not much different. 400mbps throughput for installing 10GB's? No thanks. I want a 5 minute install through SATA.
I really don't understand what you don't like about the installer app which comes through App Store. It has everything the ISO has anyway, except it's not a bootable image. So unless you use the OS X install disc as a first aid second boot disk, the new app doesn't take anything away from you either.