After going through a few articles on making Live CDs for various Linux distros, I found a rather interesting article on booting Damn Small Linux from a USB drive and tried it out.

Damn Small Linux, as the name implies, is damn small. It takes about 50 megs and is, obviously, totally free. The UI isnt great and might remind you of older versions of windows (like 3.0 and 3.1), but its size more than makes up for this. Plus, its extremely stable and has all features that any other linux distro would.
Click here.
Use the link above to follow the tutorial that I used – its extremely easy to follow – and boot linux from a USB drive. It’s uber-geeky, having Linux in your pocket.
And the best part – as its like a live CD, it can run without any partitions/uninstallation.