Instead of burning DVDs or fiddling with USB creation tools, we can boot the ISO from the network.

Naive attempt

We need the following:

Quick steps:

# Be careful of which disk you're writing to (of=/dev/sdX) !
$ sudo dd if=/tmp/ipxe.usb of=/dev/sdX

If you hit Ctrl+B before the network is setup, you may need the following commands:

ifstat (see the detected network devices)
dhcp   (acquire IP address)
route  (show IP)

Setup starts normally. Select a language, region, keyboard type, accept the EULA, format the hard disk and... nothing. It refuses to go on saying it can't find the disk (even though it lists it and has just created partition(s) on it). After spending a few hours and trying different tricks, it becomes obvious that Windows just doesn't work this way.

Solution

Download the "Windows 7 USB/DVD Download Tool" and burn the ISO onto a bigger USB drive.