Although the live CD runs fine, the tazusb (and tazlito ?) taz-format seems to work, but tazusb gen-distro fails to find .../boot/isolinux/*.inc and cannot continue. I've tried this on multiple machines, using multiple CDs (md5 sums checked) and no dice. In IRC discussions, I have heard tell of other people failing at the same point, also using tazlito.
And will be avalaible when a new version of tazusb will be release in a few days. You can also use the last development version of tazusb from HG repos: http://hg.slitaz.org/tazusb/raw-file/tip/tazusb