Not sure what's wrong there but I replaced my hda just yesterday by making a slightly larger ntfs partition on the new drive, plugged it in and while booted into live-cd used dd if=/dev/hda of=/dev/hdb and after 55 minutes it was done and the new disk then as hda worked just fine. Later on I added more partitions as the new disk is larger.
Perhaps you have USB 1.1 and it can't write as fast as dd puts out? All in all it must take hours to finish.

Procedurally, I unmount both hard drives, and make the USB drive writeable in the GUI
I don't think you have to make it writable, certainly it shouldn't be mounted.
I also dropped down to Ctrl-Alt-F2 and did init 3 to free some memory for the process.

One thing that occurred to me is that perhaps the drive capacities are not exactly equal (though they appear to be). If this is a potential issue, is there a workaround that copies simply files, not blank space (which, I believe, cloning also copies)?
The target needs to be at least as big as the source. dd copies bit by bit, if you want just files and not free space you need to use something else.