Startup Disc Creator only does ISO9660 installs to a single partition drive.
Yumi Multiboot USB will make multiple persistent installs on the same partition, however it only runs on Windows.
MultiBootUSB will also make multiple persistent installs on the same partition and there is a Linux version.
You can divide a GTP drive into partitions and do a Full install of an OS to each partition using "somerthing else". Grub should sort itself out automatically.
Edit:
One of my favorite multibooters is to make a drive with mkusb, using defaults, overwrite the ISO9660 partition and casper-rw partition with a FAT32 partition for persistent folders, add a casper-rw file and a home-rw file to each uniquely named persistent folder and create a folder on the NTFS partition labeled "iso" for the ISO's, then add some ISO's. Edit usbboot/boot/grub.cfg to loopmount the ISO files. Include: persistent persistent-path=/<persistent-folder-name>
if you want persistence. Persistence is limited to 4GB for each casper-rw file and 4GB for home-rw file.
There are a few variations on this method.
All of the above have worked for me with BIOS and UEFI.
Edit 2: Linux Installer Drive
Multibootin with UNetbootin. Use GParted to create a msdos flash drive with as many FAT32 partitions as OS, (~2GB each), Partition size may be increased to suit persistence requirements. Flag first partition, (sdb1), as boot. Use UNetbootin, (655), to install an OS to each partition adding persistence as required, copy chain.c32 from the syslinux 4.07 package to root of first partition.
Open first partition and make a copy of syslinux.cfg save as syslinux2.cfg. Edit the original syslinux.cfg as follows:
default menu.c32
label boot_hd0_1
menu label linuxmint 18.2
config syslinux2.cfg
label boot_hd0_2
menu label Ubuntu 16.04.3
com32 chain.c32
append hd0 x
where x is the syslinux partition number.
May need to be modified for UEFI
Will add graphical summary of this method as a separate answer.
Questions and answers
Question 1: Is the case that I have described here, same in all 16.04 distros of Ubuntu and derivative flavors? Or is it just Lubuntu that is having this issue? Or is it just my system that's doing this?
Answer 1: Yes, it is the same in standard Ubuntu and all Ubuntu community flavours, introduced with Ubuntu 16.04 LTS.
The old Ubuntu Startup Disk Creator was extracting the content of the iso file and trying to create a boot structure. It was notoriously buggy for years, because it was affected by modifications of the boot system between different versions of Ubuntu.
At the same time all the current Ubuntu iso files are hybrid iso files. It means that they can be used to burn DVD boot disks as well as to clone USB boot drives and memory cards. Cloning is a very simple and reliable process, where every single byte is copied as is from the source to the target.
So a new version of the Startup Disk Creator was developed and introduced with Ubuntu 16.04 LTS. This version is a cloning tool. The resulting USB boot drive will have an iso9660 file partition table and file system, which is read-only. Therefore it is not possible to make a persistent live drive with this method in Ubuntu 18.04 LTS and previous versions.
With Ubuntu 19.10 it is possible to clone a [slightly modified} iso file and add a partition for persistence behind it, because of a new feature alias squashed bug.
See How is it easier to make a persistent live drive with Ubuntu 19.10?.
Question 2: How do I fix this and get the older Startup Disk Creator back?
Answer 2: Don't try to get the old and buggy Startup Disk Creator back.
2.1. Standard case: Live-only
I would recommend that you use the current cloning Ubuntu Startup Disk Creator, when you want a live [live-only] Ubuntu USB drive or simply an installer (to install Ubuntu into another drive). This would be the standard case.
2.2. Persistent live drive
When you want a persistent live drive, you can use another tool, an extracting tool, that creates a partition table and file system(s), that can be mounted with read and write permissions. Or you can do it yourself rather manually, if you want to be independent of tools.
mkusb is a cloning tool in the standard mode, but you can use it to create a persistent live drive. This works with all current Ubuntu and Ubuntu community flavour desktop iso files. The persistent data are stored in a casper-rw partition, limited only by the size of the drive size (available drive space).
If you run standard Ubuntu, you need an extra instruction to get the repository Universe. (Kubuntu, Lubuntu ... Xubuntu have the repository Universe activated automatically.)
sudo add-apt-repository universe # only for standard Ubuntu
sudo add-apt-repository ppa:mkusb/ppa # and press Enter
sudo apt-get update
sudo apt-get install mkusb mkusb-nox usb-pack-efi
See the following links
help.ubuntu.com/community/mkusb
help.ubuntu.com/community/mkusb/persistent
Lili can also create a persistent live drive, but with a casper-rw file, maximum size 4 GB (limited by the FAT32 file system).
See this link,
www.linuxliveusb.com/
There are several other tools, that can be used in a similar way as Lili, for example Unetbootin,
unetbootin.github.io/
'Do it yourself'
If you have a 64-bit (alias amd64) version of Ubuntu, you can use a simple extraction method manually. It is possible to add a casper-rw file, maximum size 4 GB (limited by the FAT32 file system).
See these links,
help.ubuntu.com/community/Installation/iso2usb#Do_it_yourself
help.ubuntu.com/community/Installation/iso2usb/diy
Comments in response to 'Edit, 8.Oct.17'
I have checked in my working environment, 16.04 LTS and a testing environment, Artful Aardvark, to become 17.10 during this month (October 2017).
The main partition of a cloned USB drive of Lubuntu 17.10 amd64 will be automounted in both systems.
But nothing will be automounted, when I plug in a corresponding cloned USB drive of Lubuntu 17.10 i386.
$ sudo lsblk -o name,fstype,size,label,mountpoint
NAME FSTYPE SIZE LABEL MOUNTPOINT
sda 55,9G
├─sda1 vfat 480M /boot/efi
└─sda2 ext4 55,4G /
sdb iso9660 3,8G Lubuntu 17.10 amd64
├─sdb1 iso9660 918M Lubuntu 17.10 amd64 /media/tester/Lubuntu 17.10 amd64
└─sdb2 vfat 2,3M Lubuntu 17.10 amd64
sdc iso9660 3,7G Lubuntu 17.10 i386
└─sdc1 iso9660 927M Lubuntu 17.10 i386
sr0 1024M
I don't know why there is a difference between these two cases, but I know that Ubuntu's developers are focusing on the amd64 architecture. They will stop releasing i386 desktop iso files. But Lubuntu and other community flavours intend to continue to maintain and release i386 (32-bit) versions and release i386 iso files.
See this link: What will happen to i386 software since Ubuntu will drop support to i386 ISOs?
There are people (I am one of them), who have tried to make the developers add features or at least information text similar to what you suggest, but we have failed. (I have tried to make them add the feature to restore a USB drive to a standard storage device after using it as a USB boot/install drive, but without luck. Instead I provide it via mkusb and I try hard to make people aware of it.)
I think the developer in charge of the Ubuntu Startup Disk Creator alias usb-creator-gtk
wants it as simple as possible to avoid confusion by extra details.
The standard way to communicate with the Ubuntu developers is via bug reports at Launchpad, where you should have (create) a user account,
https://launchpad.net/
You can create a bug report in a running system, that is affected by the bug (or feature request) with the following command
ubuntu-bug <buggy-program-package>
in this case
ubuntu-bug usb-creator-gtk
Please edit your question to add a link, when you have written your bug report. Good luck :-)
Finally, you don't think the removal of previous buggy nature has led to a solution. You'd call this a taking a step back until the matter is resolved. I don't agree with you. Most linux distros provide hybrid iso files and recommend cloning as a standard method to create USB boot drives. So this is a standard method and well established.
It is difficult to maintain extracting tools, that work between all possible combinations of old and new versions of Ubuntu, and I think it is better to make people aware of the cloning method and how to manage a cloned USB pendrive during and after its usage as a USB boot drive.
Best Answer
So I finally found the answer after searching for a year!
When you get this warning message after using USB Startup Disk Creator
"The driver descriptor says the physical block size is 2048 bytes, but Linux says that it is 512 bytes." Means that the dd command in behind the nice GUI forgot to specify the bs=2048 option.
First identify which drive letter the USB stick has received from the kernel
For example this USB drive is on Device Serial Disk h: (/dev/sdh)
Use the information to wipe all the partition tables and data from the drive
⚠ WARNING THIS NEXT STEP WILL DESTROY ALL DATA ON THE DRIVE ⚠
Make sure that you have chosen the correct USB stick for the value of X so you don't accidentally wipe your harddrive/SSD
Background
It's not that the unused space is wasted. The USB disk has been corrupted by USB Startup Disk Creator. For some reason USB Startup Disk Creator has become CD-ROM creator. It writes your USB-Stick to iso9660 format which is only intended for CD-ROM's. Since new computers don't come with CD-ROM players or writers anymore this is a regression bug and has been reported here: https://bugs.launchpad.net/ubuntu/+source/usb-creator/+bug/1708881