With just a little help I managed to get the latest Ubuntu running on a new 2GB USB stick. I must say I am impressed. I had a few setbacks but the whole thing only takes a few minutes so starting over isn't that big of an issue.
First thing is this tutorial. It works flawlessly for most of the work. I even cut and pasted a lot the commands. As noted the default Feisty Fawn ISO does not support persistent mode so I had to hunt down a patched ISO for the build part.
I used an old Dapper Dan live CD for my system to work from. It recognized all my hardware (Dell Optiplex 745 Core DUO) and the commands from the tutorial are identical (you will have to apt-get lilo, syslinux, and mtools).
This is the patched image for the build due to the problems with the default Feisty Fawn. I put this ISO on a spare 1GB USB stick since it doesn't fit on a CDR. I mounted this ISO as the "ubuntuCD" referred to in the tutorial.
The only trouble I had after building the USB image was with my laptop. I have a Dell Latitude D810 and for some reason I was getting "missing operating system" when attempting to boot from the USB drive. It worked fine on the Optiplex but not in the laptop. I reviewed the tutorial and decided to run the lilo command (lilo -M /dev/sdb) on the drive. After that it worked perfectly.
I can't say how impressed I am with the 7.04 build of Ubuntu. It works wonderfully on my laptop. It found all my devices and looks beautiful. I just joined my wireless network and I was up and running.
One thing I have figured out. The update component of Ubuntu will destroy the custom USB install. You will have to update the ISO and build it into the 1st partition of the install if you want updates. The good news is that if you do hose your entire USB install you just have to rebuild the 2nd partition. The first partition acts as a LiveCD and allows you to "fix" any problems you might have with the custom side of things.