You can install Win 7 from usb. I did so when the RC came out on a 4gb pen drive. Everything will go smoothly just follow the instructions closely when it comes to creating partitions on the pen drive.
Windows 7 can be upgraded only from Vista SP1. You cannot directly upgrade from Windows 7 beta to Windows 7 RC. (Well, there are ways involving editing the registry to make the version look different and such, but you need to google for them).
Microsoft has specifically mentioned that you cannot upgrade Windows 7 beta to Windows 7 RC, meaning that you cannot run the RC DVD or iso from your beta installation and select for an upgrade. It won't work that way. (Though there are workarounds for it as mentioned earlier).
What I did was, I booted into my Vista SP1 OS, deleted the 7 beta installation fully, ran the RC iso on a virtual drive and installed it.
In your case, either you need to do a clean install, or if you also have the Vista OS, then boot into it and install by using virtual drives. The third option is to find the workaround to directly upgrade from the beta to the RC.
Check this: How to Upgrade from Windows 7 Beta to RC Build 7100