Yes, it's conceivable that any storage device you attach to a compromised system could be affected by the malware. In this case, the malware would have the opportunity to mount the install image, inject bad things into it, and put the bad modified image back on the flash drive. For example, it could modify the Registry to make a bad script download and run on startup. It wouldn't have to modify any Windows setup components, only the image that gets applied to the new system.
In effect, malware designed to spread via install media (which is unlikely, but possible) would make legitimate setup components lay down a compromised OS.
If you only booted the system from media created on a clean computer, though, you would be fine. (Assuming that no lower-level rootkit had been installed.) Since malware on the hard drive wouldn't be running, the clean image would blow it away.