DML loads only from SD. To USB Load download Dios Mios 2.8 and install it using IOS-236. Then download USB Loader GX r1209 and you will not be asked to copy to SD.
For full details on this look at the Dios Mios guide in the guides section. You can also optionally check out Devolution (the other way to load GC ISOs from USB), link for the Devolution Guide is in my signature.