Disk Utility, for whatever reason, is prohibited from writing Joliet (ISO 9660) onto MS-DOS FAT 32 Flash Drives, though it should definitely work.
The best way to accomplish your goal is the following:
Open Terminal
Type 'diskutil list'. You'll see your primary hard drive (probably listed under /dev/disk0) and your Flash Drive, which will be listed as /dev/disk#, with # being any number that isn't zero. REMEMBER THE DISK LOCATION
In the next line, type 'diskutil unmountDisk /dev/disk#'. You'll see this message on success:
Unmount of all volumes on disk# was successful
Now type, 'dd if=(DRAG ISO/DMG HERE) of=/dev/disk# bs=1m'
