Copying ISO images to USB sticks with dd in a virt can certainly be done, but there are things that could have gone awry. If the reason you're using a virt is to get an isolated environment, there are any number of live Linux distros that you can boot into and then create your Qubes Boot USB.
Of course, you'll still have to create a USB from an ISO to make the live Linux USB. :)
Are you sure you ran sync after dd and let it finish?
I tried the USB install. It worked, but was phenomenally slow for me. It took over 5 hours for the install to take place on a 128gb PNY USB 3.0 stick. And it would take 20 minutes to boot up.
After buying an Samsung 970 m.2 SSD and installing on their, I realize why the USB option is so slow. The amount of work the OS has to do on the filesystem is so extensive it is just slow. USB 3.0 is better than 2.0 (I heard there may be a bug or issue where Qubes operates as if a 3.0 drive were actually a 2.0 drive?). I would say the USB option is not really a viable option (at least from my experience). If anything I would suggest trying a thunderbolt 3 drive. But, not sure what sort of driver issues you would have.