I've succeeded in getting Linux Mint installed on a 2GB USB flash drive, and it runs really well from there! The install from Windows I mentioned earlier didn't work, so I used this one for installing Ubuntu Gutsy from a Live CD and that worked fine! Even Compiz-Fusion works on it!
Mint is a great distro, and ideal for this purpose because it already comes preloaded with everything you need (Java, Flash, MP3 playback etc), so I can now take it anywhere and be able to use Linux from someone else's computer. It's also handy because in easierbuntu I sometimes struggle to remember what things are called in Gnome, being primarily a KDE man. As the USB drive will boot quicker than a Live CD, I can check things in Gnome quickly and easily.