I would also recommend performing an actual INSTALLATION of the OS on a USB device, instead of a LiveUSB with storage. After performing tests with the different solutions, I found with a friend of mine that for the SAME storage device, the LiveUSB version will boot slightly faster (like 5 seconds faster under 10.04) than the real installation.
However, when we tried to then upgrade some of the packages, we ran into a space problem. The LiveUSB installation keeps everything in a SQUASFS file system, which is essentially read-only, and is unpacked as needed. This means that an existing package is in this SQUASH can only be read, not deleted.
In short, upgrading packages add up to the used file space, instead of replacing files. The new package files will be used instead, but those new files are just like regular ones. Over time, the load time will increase slightly, as more and more packages will be in regular file system.
On a lnger term, LiveUSB is not the solution. Definitely, I would recommend a full installation, which can then be maintained like any other hard-disk installation.
Just one thing:
At the end of the questions, before confirming the installation to start, there is an "Advanced" button. Click it to check that the GRUB or GRUB2 will indeed be installed on the proper device that is your USB disk, not the local hard disk. If you see "/dev/sda" this is NOT GOOD. /dev/sda is the first internal hard disk. using sda will render your computer unbootable. Change /dev/sda to the one that designates your actual USB disk.
This is a mistake I will not forget.