A few months back, I bought a 4 GB Kingston USB memory stick. It cost me around 1800 Indian Rupees (In US dollars it comes to just over $45). My idea was to use it partly as a data storage where I could keep files as backup and to use a part of the USB stick to install Linux.
The USB stick initially had only a single FAT 32 partition. So I repartitioned the USB stick to two 2 GB partitions each, both having FAT 32 file system. And in the first partition, I decided to install Linux. I went through the process and copied the distribution of my choice to my USB stick partition and even made it bootable using syslinux - which is a boot loader for Linux operating system. But as luck would have it, my computer refused to boot from the USB stick complaining there was no boot loader on the USB stick.
Later I came to know that syslinux has a limitation of working only if the partition is less than 1GB size and my USB stick had a partition of 2 GB. I didn't get the time to go back and try it out again. Perhaps I will try it some time soon on a 1 GB partition.
Today I came across this quite exhaustive but very informative article titled - "QEMU-Puppy - A Personal Portable Computer" written by Erik Veenstra where he explains how to turn your USB stick into a personal portable computer. He uses Puppy Linux (A very good minimalistic Linux distribution) and QEMU for the same. Erik walks one through the installation of QEMU and Puppy, to booting, configuration of various parameters, some tips and tricks that will save your time and a bit of Puppy Linux internals. All in all a very interesting article and a project worth trying out.