To create more than one partition on an USB thumb drive you first have to create a Partition Table (Same goes for using Ubuntu's USB Startub Disk Creator by the way).

You can do this using gParted -> Device -> Create Partition Table.

Booting ISO Images

Some Live CDs (like Debian) have a kernel option like "fromiso" to boot from an ISO image. To boot from any bootable ISO there's another way: GRUB4DOS.

Reformat¹ a thumb drive, download the GRUB4DOS package, extract and change to the extracted directory. Run ./bootlace.com /dev/sdX (where sdX is your USB drive) and copy grldr, menu.lst and a bootable ISO to the thumb drive. Add something like the following entry to menu.lst:

title Ubuntu 9.04 Live CD
map /iso/ubuntu-9.04-desktop-i386.iso (hd10)
map --hook
root (hd10)
chainloader (hd10)

Now you should be all set.
¹) You should really reformat the drive if you use a FAT32 filesystem and already did several file operations (copy, delete...), otherwise the ISO might be fragmented and GRUB4DOS may not be able to boot it. There are tools to defragment a single file, but the ones i know of are only available on the Windows platform.