Ok, your first post confused me a bit since you were talking a file being non-read-only hence why I thought of ISO. As I said it copies files to temp folder but this is only to assemble files from different locations before writing them to media and to also recompress Winpe to inject latest ghost executables to it.
Now, what OS are you running, Vista? If so then turn off all restore points. Vista hides a lot of space behind those restore points and what you see in Explorer is far from truth compared to what ewe get from API. If not Vista then we'll try troubleshooting something else.
Cheers.