Comment 6 for bug 658865

Righteo, after 3 hours of frustration I have finally got the install from usb to work. I am not an expert on ubuntu so my interpretation of what is going on may be off the mark but the following steps achieved success on my machine.

The problem is that the file structure on the usb differs to what is on a livecd and apt-setup is unaware of this. To resolve this I simply copied the contents of filesystem.squashfs on the iso into the usb stick. Luckily the parts it is reading from this appear to be just apt config files so the fact that you loose symbolic links and permissions etc on a FAT32 usb stick shouldn't matter.

On your current Linux installation: (If you don't have one you could use a live cd off a different usb stick)
1. Create USB stick. I used unetbootin 494 and ubuntu-10.10-desktop-amd64.iso
2.
sudo mkdir iso
sudo mkdir source
sudo mount -o loop pathtoiso/ubuntu-10.10-desktop-amd64.iso iso
sudo mount -t squashfs -o loop iso/casper/filesystem.squashfs source
sudo cp -pLr source/* pathtomountedusbstick

Rant:
I am surprised that this problem is not seeing any attention. As with many modern pcs I only have wifi internet access and the usb netinstall doesn't recognise my wifi card. I also don't have a cd/bd drive as I only use open source software downloaded off the internet. So a usb install is the only possible option, surely this would be the case for an increasing number of users? To this end I have done my best to provide a workaround.