Install Linux to a USB disk

From Linuxintro

To install an arbitrary Linux distribution onto a USB disk, follow this tutorial. Note that you do not need to have the distribution you want to install onto USB disk on your harddisk. This has been tested with installing kubuntu 7.10 while running SUSE 11, but should work same or similar with any other distributions.

Create a virtual disk

dd if=/dev/zero of=newdistro.img bs=1024 count=10000000

Boot your distro virtually

qemu -cdrom /dev/sr1 -hda newdistro.img