Not ready for prime time...
Create an ext2 filesystem on the USB drive, and set "bootable" flag on the USB drive.
-> ls -l /dev/disk/by-id/ [...] lrwxrwxrwx. 1 root root 9 2010-04-13 11:57 usb-HP_v125w_UTa11353000D55-0:0 -> ../../sdb
Make a single ext2 partition on drive:
-> fdisk /dev/sdb
[] n,p,1,+25M,
w
-> mke2fs /dev/sdb1 -L "multilive"
-> mount /dev/sdb1 /mnt/tmp
-> chown -R ray /media/multilive
-> chgrp -R ray /media/multilive
-> fdisk /dev/sdb
[Single primary partition.]
-> parted /dev/sdb
(parted) toggle 1 boot
(parted) quit
-> mke2fs /dev/sdb1
-> e2label /dev/sdb1 distro