"I have been enjoying my Ubuntu 7.10 Live Persistent USB for many months now. I use it to quickly and easily install Ubuntu on desktops, we also sell them at TheLinuxStore.ca. But it seems persistence was broken in 8.04. Turns out to be a simply mistake, but there are many steps to fix it. I have seen many people asking about this so I thought I would write a how to. This post will start from the beginning and explain how to make an Ubuntu 8.04 Bootable Live USB from scratch.
Assumptions:
You have at least a 1GB USB thumb drive
You have the ubuntu-8.04-desktop-i386.iso file handy
You are running Ubuntu on your desktop
Reconstructing the Ubuntu Live CD for USB
Step One - Make a directory to store the restructured CD [...]"
http://www.ryancloke.com/ubuntu-804-hardy-heron-live-usb-how-to/
