Boot Error is issued from the syslinux boot sector, the first sector of the FAT file system created when usb-creator formats it. The error means that the code in the boot sector can't figure out what sector it was loaded into and therefore can't find the rest of the boot code (the very next sector and following). This problem occurs way before anything .iso specific happens.

If the BIOS correctly interprets the usb stick as a hard disk it will start execution from the MBR which will set some registers and find and start the sector I mention above. One register points to the booting partition table which contains the starting sector of the partition--and there should be no problem. (If real interested see ldlinux.asm in the syslinux package.)

If the BIOS interprets the flash drive in another way, perhaps zip drive emulation, it may skip the MBR and start execution with the syslinux boot sector. Without having a pointer to the partition table entry, the code there relies on a field (bsHidden) in that sector which is set during partition formatting--the hidden sector field. It contains the offset of the partition on the disk as a whole.

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If I may speculate:

In working on an another bug I found out that older versions of mkdosfs in the dosfstools package set that value to 63, the usual offset of the first partition on a modern disk since most start on the second track of the device and most modern devices have a tracksize of 63 sectors. Formatting thumbdrives with usb-creator when one of those older packages was installed worked for me. I determined that more recent versions of mkdosfs set that field to 0, which obviously won't do in the zip drive emulation case. This was changed upstream in mkdosfs to eliminate a regression when formatting diskettes (or, more importantly, diskette images) and made it into Ubuntu.

I've submitted a patch to mkdosfs to set the field correctly in both the diskette and mass storage cases but it hasn't been reviewed yet. Please see LP: #398241.

To check the possibility that this incorrect field is causing this problem one could install the mkdosfs package in my ppa, or a very old Ubuntu one (from Hardy perhaps, I don't remember how far one has to go back) and reformat the partition.

It may also be possible to format the disk partition manually using the mkdosfs -h option, eg. sudo mkdiskfs -h 63 (partion-device). This doesn't work with my BIOS because it needs other fields to match the traditional standard. One could also format the partition with using one of several operating systems originating from the state of Washington in the USA to get a de facto standard format.

To see the wrong sector number by eye: sudo dd if=/dev/sdxn bs=512 count=1 | hd

and examine the 4 byte little-endian value at offset 0x1c. As I said above, it is supposed to be the sector offset of the partition /dev/sdxn on the device /dev/sdx.

If setting the hidden sector field fixes the problem this bug is a duplicate of LP: #398241 and the package dosfstools is responsible. 

Note well that it only matters when the partition is formatted by usb-creator or more directly, not when usb-creator installs a new image on an already formatted usb stick. A stick formatted long ago could be used indefinitely if not reformatted incorrectly.