Just read this article over on Information Week about Fedora 9‘s (Linux) USB Live feature that lets you store your preferred desktop on a 2GB USB flash drive. This desktop is not from your own Fedora desktop. Instead it is a prepackaged image that Red Hat calls CustomSpins.
These desktops can be booted and run directly from the USB flash drive. I haven’t tried it yet. But, it is on my list of things to do
You can find more information about this on Fedora’s web site at…
Addendum: Just found an additional Linux on USB flash drive article on Information Week: How To Run Linux From A USB Flash Drive