I need to create a bootable drive from the aforementioned file. I have an external drive which I am planning to use; I was also curious about whether I only need the drive as a means of booting, or to boot and save data.
So, to recap:
Generally, your home user account (where you keep your data) is on the same drive as your boot drive, though it is possible to separate them. Also, be aware that if you create an Ubuntu Live CD/USB, nothing you do while logged into that drive will be saved. You have to perform a full install.
As for doing that and making the Live boot drive in the first place, I asked the same question last night and have spent much of the time in between hunting down the answer.
I've written up the answer here and hope it helps:
