MacBook will read USB drives with no problem, but will not see the USB drive as boot drive I am trying to install OS X Lion on a Macbook 4,1 which I've upgraded to 4 GB of RAM.

It should support this OS, however I cannot get my Mac to see the USB drive as a bootable option. It's a SANDISK Data traveler 16GB

So far I've tried 


Flashing the drive initially to Mac OS Extended (Journaled)
Partion the drive as GUID
Restoring the install DMG which should according to most guides make the drive bootable


However even though the drive mounts in my OS (10.5.8) it won't show in the startup disks as a bootable option.

I've tried using two permissions reset programs, another USB stick and even reseting the NVRAM. But still no joy. Does anyone know of anything else it could be?
Try resetting the PRAM settings. First, restart your Mac, and before you hear the "bing" sound press option key (alt) + command + r + p, it will restart your Mac, after you hear the sound twice just plug in your USB stick and press the option button and boot from there. It worked for me. Hope this helped you out.