Booting from pen drive - possible or not
Since you worded it as "if I copy the entire iso file to the pen drive" I want to just clarify something. You do not want to copy the .iso file to the thumb drive. You need to use an utility, such as UltraISO, to extract the ISO contents first. It is those files that need to be on the thumb drive. Also make sure that whatever is in the root of the ISO is also in the root of the thumb drive. I have seen people copy the ISO contents into a folder on the thumb drive and then be surprised why it won't boot.
It depends on your machine.
Most computers in the past few years - Yes, but you may need to burn a operating system on there as well as the machine may not pick it up.
Basically, I have pretty much found that most machines I work from can just have standard ISO's expanded to USB drives and work straight away without anything extra, where as some require you to format, include system files and basically prepare it before you start to copy over any other files.
Try it, you can't break anything by just having a go! (unless you have some sort of unattend script that formats your drive!... But if you can get that far, it has probably done what you need!)
http://www.intowindows.com/how-to-install-windows-7vista-from-usb-drive-detailed-100-working-guide/
Similar steps will work for any other iso.
Plain copying an ISO file to a usb drive won't always work. I'm just guessing it is a linux distribution you want to install on the usb drive.
http://www.pendrivelinux.com
On this site you can find all kind of guides how to install ubuntu, backtrack, fedora, and way more distributions on a usb pendrive.
~ Jeffrey V.