So here is the work around i have found.
Quick disclaimer i'm not responsible for and thing that this does or doesn't do to you computer!!!
OK First there are a Few things that u will need
1) One working Install Distro (at this point i'm assuming that any one would work ine was Kalyway_10.5.2_DVD_Intel_Amd )
2) Two thumb-drives the same size (the size u need depends on Distro you use i only need two 4 gig)
3) a computer with Linux installed( i use Ubuntu but any version should suffice)
first step is to wipe the thumb-drives clean, i formated them fat32.
side note i also had trouble with my thumb-drives they where both sandisk 4GB.
so i downloaded a tool called u3_tool from http://u3-tool.sourceforge.net/ and followed there install process in the read-me it came with. (there is also a windows version too i haven't tested it)
on with the u3_tool i ran the following commands and u will lose the u3 CD and all data on the sandisk
sdb was my device name yours might be different
u3-tool -e /dev/sdb
enter a new password
u3-tool -u /dev/sdb
enter yes to unlock
u3-tool -R /dev/sdb
enter yes to restore
u3-tool -p 1 /dev/sdb
enter yes then this command sets the cd size on the sandisk to 64.00 kB
then i booted the computer up with the install disk i created
letting load all the way to the point u chose the hdd u want to install on
using the diskutil in the mac os installer, i proceeded to format the thumb-drives in the HFS+ format without the journaling on. naming what ever u want just remember one will be the finished product (i named one "Tmp" and one " OSX")
while still in the the diskutil i made dmg of the cd to one of the Tmp Thumbdrive
this quite some time go play your ps3 or what not!!
after that has completed i took the DMG image i created and restored it to my OSX thumbdrive. again not as long but still play my ps3 for a bit
here is the tricky part me personely had to restart and boot into linux.
but to save time if you have another computer handy and running linux
(if so don't shutdown the computer leave it at the diskutil screen).
ok now we have linux pop the thumbdrives in. if you don't have HFS+ support then google it should be easy to fix. check make sure that every thing is work and u can read the thumb-drive.
ok go ahead and download the latest chameloin they have out( i used Chameleon-2.0-RC4-r684-bin) and unzip it to a folder
now open a termial navigate to the folder with the Chameleon-2.0-RC4-r684-bin and then run the following commands
sudo cp -r * /media/Tmp
sudo cp /i386/boot /media/OSX
Ok now i had to restart again,and run the install cd again. but if u saved time then plug them back into the computer running the install.
OK now get back to the disk-util screen on the install disk make sure both drives are OK.
also make a note of clicking the info button and finding the device name mine was disk0s1 yours should be a similar name.
if so click the OSX drive and unmount it.
OK now close the disk-util and open a terminal.
ok now in the mac terminal run the following commands
fdisk -f boot0 -u -y /dev/DEVICENAME
dd if=boot1h of=/dev/DEVICENAME
if the commands ran correctly then run one last command
Then remove the install CD and the Tmp thumbdrive and your computer should reboot into the usb with Chameleon and just hit enter and the install will boot