I read a good article on installing Linux on a USB Flash Thumb Drive. It looks interesting and when I get a drive I will try it.

This is about installing Puppy Linux on at least a 128mb thumb drive.

http://www.goosee.com/puppy/index.shtml

"You download a Live CD image, burn it onto a CD, boot into the Live CD and run a script to install the distro on the usb device."