There are some initiatives to install and run applications from a USB drive. I prefer http://www.portableapps.com. They are open source which is free.
Why do I want to run applications from USB drive?
1. You can take the USB drive to any computer. Your portable applications are instantly available
2. You don’t have to install the applications locally.
Here are the some sample application I am running on my 4GB USB drive.
Firefox 2, Skype, GoogleTalk, 7Zip, Media Player, puTTY, VLC Player, Thunderbird, Notepad++, Audacity, OpenOffice, GIMP and many more.
If you like the idea, go straight to http://www.portableapps.com. I would click on Suite and download the "Standard Suite" for starters. In their forum, people were discussing about how to put other applications into USB drive.
They also give the Notification bar Icon with Menu (Start Menu look alike). You can also take a backup of your USB drive using the portable apps menu.
Anand, the Architect 