Use the ISO if you still have it. UDF formatted, hmm, checking Google, a full UDF disk is not bootable. It has to have some form of ISO9660 file system on it to make it bootable. That's also why you see a README.TXT file, that is the ISO9660 part. Perhaps VB can't handle that. You really should use the ISO file instead.
Because this is about installing Windows, I'm moving it to Windows Guests.