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DSL provides a USB install utility
There is an install option for USB devices included within DSL (last several versions). It essentially creates two partitions on the device: one ~100 MB ext2 containing a frugal installation (read-only like liveCD) and another FAT32 taking the remainder of the device. This is ideal for portability and longevity of a flash drive with retained access for non-linux PCs. It will boot just as the liveCD and you can set up persistence (maintain settings/software changes between sessions) using the 2nd partition. The product doesn't include the option to run within Windows via Qemu, but you can add that if you plan to use it that way.
You can set up the usb to allow both booting and Qemu from the same DSL instance. Alternatively, you could just install it by standard method like a hard drive, though that's less desirable for a flash device.
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There are several additional details/options described here on the DSL Wiki under "Installing_to_a_USB_Flash_Drive"
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