Yup, that obviously does work.
I can see a situation where the thumbdrive is misplaced and the .iso file is kept along side the backups. When a recovery is needed, snag any thumbdrive that's in a drawer, copy the .iso to the thumbdrive, then away we go. Could also use optical media too but that is so 2000's.
Just for fun, tried the Windows 7 tool on a Server 2008 R2 box....same issue. Even tried creating a different .iso as well.