How are you managing to boot from floppy and read from the USB flash drive?
As far as I am aware, PCDOS has no support for USB storage devices. It's only when you make the actual USB device bootable by emulating a floppy disk (or a hard disk for that matter) that you stand any chance of accessing it from DOS.
Aside from that, how large is your USB key? Is it formatted FAT-16 or FAT-32 ? How large is the image file? When you boot PCDOS from the USB key, is it coming up as A:\ or C:\ ?