I've got an old laptop, around 9 years old I guess, and it boots from USB, don't know how old Scoundrel's boxes are. I have Slitaz installed on a one gig USB, and it works okay, just really really slow, but then again it didn't install like I expected, I need to try and re-do it manually, it actually unpacked and installed the file system to the stick, whereas I just wanted to transfer the iso, and boot it all in ram.
@5: Sony now has 512 gig USB sticks, saw a couple on E-bay, that's some crazy stuff, all that memory in such a tiny package.
To me this kind of thing definitely becomes an option with USB 3, it's way faster than IDE or even garden variety SATA, only problem is wear-leveling, not sure I like that idea, seems like it's basically a type of fragmentation, and would slow your effective seek times down, perhaps best way is to keep OS on a small stick, and have a conventional HD just to store files. Or maybe multiple sticks of USB? Run them like partitions?
Interesting experimentation, i'd definitely like to hear more about people's ideas and successes/failures with this.

IDE to flash memory adapters are pretty cheap and plentiful Scoundrel, how about an SD card instead of USB? Much faster throughput...