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Just install Ubuntu straight to the USB stick as you would for a hard drive installation! As long as your computer BIOS can boot off a USB stick, then you should be okay.
My installation went on a 4GB stick leaving me with about 1.2GB of free space.
- Boot off a Ubuntu LiveCD
- Choose the location of your USB stick to install (I chose guided, use entire disk)
- Wait until it's finished installing
- Reboot and remove CD
- ENJOY!
To limit writes to your USB stick, you can follow the guide here: Click
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