I had the same issue, the problem was that the localized name of the
"Downloads" folder contained non-ascii characters (Stažené). As
workaround, move the .iso to /tmp or ~ (if that one is ascii-clean) and
select it using the "other" button.

If it fails nevertheless , you are having another issue than me.

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https://bugs.launchpad.net/bugs/1273739

Title:
  usb-creator-gtk does not work: "Installation Failed"

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