Install Windows Server 2008 r2 from USB

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*note: edited 08/19/2016.  See notes for UEFI errors on newer PCs/Laptops when attempting to use bootsect.exe command and receive failure.
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After many attempts at finding the "best" solution to installing Windows Server 2008 R2 from a USB stick, here's what worked consistently for me.

First, and while obvious I'll still point it out, your USB stick needs to be at least 3GB.

Steps:

Insert the USB drive
Run CMD.exe as Administrator
C:\>diskpart

DISKPART>list disk




DISKPART> select disk 1
Disk 1 is now the selected disk

*note: in my case since I only have a single internal hard disk in my laptop, the USB drive shows as disk 1, an 8GB stick.  If you have more than one disk already installed/mounted on your PC, then modify the select statement accordingly to point to your target USB device.

DISKPART> clean
DiskPart succeeded in cleaning the disk.

DISKPART>create partition primary
DiskPart succeeded in creating the specified partition.

DISKPART>active
DiskPart marked the current partition active.

DISKPART>format fs=fat32 quick
   100 percent completed.
DiskPart successfully formatted the volume.

DISKPART>assign
DiskPart successfully assigned the drive letter or mount point.

DISKPART>exit

C:\>

Don't close your command window, but jump back into Windows Explorer to see what drive letter has now been assigned to your USB disk.  In my case it is G:  Now, if you haven't already, either mount the ISO using Daemon Tools or some similar utility to mount the ISO as readable by the OS, or insert the Windows Server 2008 R2 DVD.  My mounted ISO shows up as D: drive.  You can also type: list volume at the DISKPART prompt to get this information.

Go back to the command prompt window.  Change drive letters to the mounted ISO or physical DVD to proceed.

d:
D:\>
cd boot
bootsect.exe /NT60 g:
xcopy d:\*.* /e /s /f g:

The X17-22580.ISO release of Windows Server 2008 R2 shows 996 files copied for a total of 2.97GB.  Now, go to Windows Explorer and copy any drivers specific to the system you'll be installing Windows Server 2008 r2 onto the USB stick; in my case I just created a "Drivers" directory and placed each (Raid Controller, OnBoard Ethernet, SAS controller, Fibre Channel Controllers) into it's own subdirectory.  Exit the command prompt and eject your USB stick - you are now ready to install Windows Server 2008 R2 from USB.  Remember, of course, to change your boot order on your server to boot to the USB drive - on IBM System x servers that is easiest done by hitting the F12 key during the boot sequence.

I'll test this for a post in the very near future with Windows Server 2012.
**note: tested.  Same logic applies for Windows Server 2012r2 as for 2008/2008r2**

On a newer PC, laptop or tablet computer, you may receive the following error:

This tool can only be run on systems booted using a pc/at bios. This system was booted using EFI or some other firmware type

There are two ways of dealing with this.  1) If you're running Windows 8 or Windows 10, use the bootsect.exe command located on your local hard drive instead of the one on the Windows Server 2008 or 2012 DVD.  Alternatively, avoid ALL of this tediousness and download RUFUS. 

https://rufus.akeo.ie/

*latest update 08/19/16*

Windows XP Remote Desktop to Server 2008 R2

Enabling Network Level Authentication : Windows XP Remote Desktop

If you still have any Windows XP machines left out there, then you will encounter an error message when you try to use the XP RDC client to connect to a Windows 2008 Server: The remote computer requires Network Level Authentication, which your computer does not support.

Network Level Authentication is an authentication method that can be used to enhance RD Session Host server security by requiring that the user be authenticated to the RD Session Host server before a session is created.

Network Level Authentication completes user authentication before you establish a remote desktop connection and the logon screen appears. This is a more secure authentication method that can help protect the remote computer from malicious users and malicious software. The advantages of Network Level Authentication are:

• It requires fewer remote computer resources initially. The remote computer uses a limited number of resources before authenticating the user, rather than starting a full remote desktop connection as in previous versions.
• It can help provide better security by reducing the risk of denial-of-service attacks.

To use Network Level Authentication, you must meet the following requirements:

• The client computer must be using at least Remote Desktop Connection 6.0.
• The client computer must be using an operating system, such as Windows 7, Windows Vista, or Windows XP with Service Pack 3, that supports the Credential Security Support Provider (CredSSP) protocol.
• The RD Session Host server must be running Windows Server 2008 R2 or Windows Server 2008.

The error requires a few steps to resolve, but once done then you will be able to easily connect.

First, the Windows XP machine has to be at Service Pack 3.

Secondly, update the Remote Desktop Connection client to version 7 using this link:
Remote Desktop Connection 7.0
http://support.microsoft.com/kb/969084/en-us

Now, the more complicated steps that require a registry edit:

1. Click Start, click Run and then type regedit. Press ENTER.

2. In the left hand navigation pane, locate and then click the following registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa

3. In the right hand details pane, right-click Security Packages, and then click Modify.

4. In the Value data box there will probably be other entries in a list; arrow down to the bottom of the list and add a line that says: tspkg . Leave the other entries that are specific to other SSPs, and then click OK.

5. In the left hand navigation pane, locate and then click the following registry subkey: HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\SecurityProviders

6. In the right hand details pane, right-click SecurityProviders, and then click Modify.

7. In the Value data box there will be a list of DLLs, each separated by a comma; arrow over to the end of the list, type a comma after the last entry, and then type credssp.dll.  Leave the existing entries intact that are specific to other SSPs, and then click OK.

8. Exit Registry Editor.

9. After you have edited the registry, you'll need to restart the computer.

Once these steps are complete and the computer has rebooted, you should now be able to successfully connect your Windows XP Pro system to a Windows 2008 Server via Remote Desktop Connection using Network Level Authentication.  Don't forget that if the XP Pro PC is not joined to the domain, you may need to type the domain name and then user name for server login, ie: \\ServerName\LoginUserName.