Thanks to the constant persuasion by kagesenshi I finally tried out Fedora 9 as a Live USB Drive. And I am impressed. I haven't got any screen shots but the installation was way easy.
If you have access to a windows computer (shouldn't be a problem for the majority of people) go to lewk.org and download the liveusb-creator 2. The program can download the iso required by itself but I have already downloaded it earlier. Just select the iso and choose how much persistent overlay that you want.
Now here's the thing about the smart overlay. It is used by fedora to keep track of all the changes you made to your live USB so that your changes would be persistent. It's really nice. I tried installing inkscape after booting the usb and also saved a firefox bookmark. Both are still there when I rebooted again. Very nice.. :)
But the smart overlay is no longer available for your normal usb use. So I would suggest that you give enough smart overlay for you to install your required programs and settings and such but leave the rest so that you can save your files where it can be accessed normally as a usb disk. With the smart overlay of course you can save all your files to the normal home directory but you will not be able to access this home directory if you did not boot from the usb. Kinda defeat the purpose of being able to be access everywhere.
Haven't had the chance to extensively test it yet but so far I am very very impressed. Looking like another distro jump is possible in the near future... :P