It is a very nice feature for today's motherboard/bios to let you boot from USB. This alone really makes the floppy drive obsolete and makes recovery much easier. Just put a bootable recovery drive on a retired USB drive, such a great idea.
I did this manually. I could not get that to work. So I dropped a gentoo stage 3 install in a folder on my HDD, chrooted into it, setup the system, partitioned and formatted a 8GB flash drive with a gzip compressed Reiser4 root partition and a ext2 /boot. Copied the working system from the folder onto the root of the flash drive and setup the boot loader. After some tweaking, got it to boot successfully. It should boot most any computer and it has all the programs I need and none I dont. If I need another program I can always install it provided I have an internet connection...
I just installed Debian on a thumb drive, but it's only for that machine, I'm going to use it for my Asterisk system and save a few watts.
The Via C7 motherboard, 512MB of RAM, USB thumb drive, and CD-ROM drive only consume 30 watts. The motherboard I'm currently using for the Asterisk system consumes about 55 watts.
I should mention that Debian installed exactly like it was a hard drive..just took a little longer. In other words, Debian installs to a thumb drive with no arm-twisting needed. I also used ext2fs and set the noatime option to reduce writes.