Perhaps you can emphasise the importance of using an 32bit source for the Windows 8.1 files in your original instructions?
I just wasted several hours on this, due to the false assumption that a 64 bit source should be used. I had exactly the same problems as Gator.
I downloaded an x86 Enterprise Trial iso from the TechNet link given earlier, and used that as the source for building the WinPE boot iso.
I burned a CD from the output iso and it booted fine.
Plugged in a USB stick with D7 and D7II on it, and both started up fine.
There was no need for the .net inclusion mentioned earlier.
One thing to note, while extracting the source iso files using WinRAR I ran into extraction errors. These were caused by the long file name of the iso. So it is a good idea to shorten the ISO name before extracting it.