Hey _steve,
maybe you don't want to reinvent lusbc ..... but it has occurred to me

Really I had hopes for this - to be incorporated into lusbc, to enable the addition of 'foreign' ISOs to a usb device. On that I have not given up hope - yet.
There are things that need to be determined, such as
any possibility of being able to use Persistence when using grub to boot the device, without the need to break open the ISO and edit the boot config file, before running isohybrid..
I have not tried to see if I can arrange persistence on a logical partition. I would hope so, because if not then one such installation would need two primary partitions.
It seems it may not be possible to have any other OS on a lower numbered partition of the device ....... unless some of the, as yet unused, options help in that regard.
It does appear that this is limited to primary partition installs.
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The more I try playing with this, the more annoyed I get at not having any real information about the options. For something released in 2008 there sure is a dearth of info or even real life experience reports.
@ _steve ...... care to throw out some of your thoughts on the persistence angle for others to think about?
Just for clarity .... I have Puppy Hybrid and a couple of PCLOS (lusbc) installs on a USB stick working fine .... using the first partition for Puppy.
regards.