I've just had a similiar problem I think. I used the GUI to try to
create a bootable USB on Ubuntu 8.10 i386 running as a live CD. (Dell
Inspiron 640m, new - but possibly fake - Kingston DataTraveller 2GB USB
flash drive). The bios hangs with the message "Invalid or corrupt boot
sector".

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USB startup thumb drive fails to boot
https://bugs.launchpad.net/bugs/293083
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