I'm not sure what the current state of the art is, but for the longest time it was pretty common for USB peripheral ICs to have small flash devices attached to them in order to be able to store VID/PID and other USB config information, so that the device is enumerated correctly when it's plugged in and can be associated with the correct driver etc. And depending on when the device was designed, 512kB might have been the smallest size that was readily available via supply chain. It would not have been strange to use a device like that to store 10s of bytes!

The ISO thing is a little bit weird, but to be honest it's a creative way to try to evade corporate IT security policies restricting mass storage USB devices. I think optical drives use a different device class that probably evades most restrictions, so if you enumerate as a complex device that's a combo optical drive/network adapter, you might be able to install your own driver even on computers where "USB drives" have been locked out!

For a time, windows would more readily run an autorun from a disc than from a usb stick. Even if that disc was in an emulated usb disk drive.