When i am trying to install Windows Server 2008 R2 from the USB Hard Disk Drive "JetFlash Transcend", i am getting the error "Setup was unable to create a new system partition or locate an existing system partition. See the setup log files for more information".
Solution: Keep USB HDD which contains the operating system to install only connected to the computer and remove all the other USB hard disk drives from the computer. This works to install Windows Server on the existing system partition without error.
Note: Setup does not support configuration of or installation to disks connected through a USB or IEEE 1394 port.