Comment 1 for bug 322905

Yes the software does put Windows-style line terminators in the syslinux.cfg but nevertheless it shouldn't ever matter; syslinux supports reading from text files with either newline style. All other files are copied verbatim from the ISO so it won't affect those. Since you're reaching a busybox shell rather than hanging on a syslinux error it means that it read syslinux.cfg and loaded the kernel just fine, just that Ubuntu is unable to locate filesystem.squashfs because it for some reason can't mount the USB drive or something, the issue is something entirely other than an issue with the syslinux.cfg or ldlinux.sys files. Try reformatting the USB drive under Windows if possible, perhaps Ubuntu is having issues with detecting your USB drive.