When Kali first came out I tried to follow the instructions of using win32 disk imager. I couldn't get it to work. I tried the dd command and that did not work for me either. So I ended up using Unetbootin. I know that is not the proper thing to do.
So on this 3 day weekend for me I tried repeating my experience. I downloaded kali 1.03 and I verified the sha1sum. Today's experience ended the same way so I dug a little deeper.

When I try to use win32 disk-imager version 0.7 I select the Kali iso and click on write. I get the message
"Writing to a physical device can corrupt the device. (Target Device: [E:\] "")
Are you sure you want to continue?
I click on yes. I wait for about 5 minutes for it finish. I eject the usb thumb drive and insert it again. Windows 7 tells me the drive is not formatted.

It turns out that disk-imager does not support ISO images. From http://sourceforge.net/p/win32diskimager/wiki/Home/
"It currently does not* support writing an ISO image to usb.
* Writing standard ISO images is not supported, however hybrid images created with Syslinux's isohybrid does work."

I tried dd if=kali.iso of=/dev/sdb1 bs=512k and gives me the same unusable drive and disk-imager. Does the blocksize matter? Windows 7 formatted the fat32 partition with a block size of 4096 bytes. I also tried dd if=kali.iso of=/dev/sdb bs=512k and that does not give me a usable drive either.

I am using a 16GB thumb drive that has 2 partitions. The first one is for Kali, the second is for persistence. What am doing wrong?