Those are two great suggestions. There is a third option as well. You can install Ubuntu to a pen drive using the regular Ubuntu installer (just as you would a hard disk). When you get to Step 7 of the installer, click Advanced Options, then choose to install the Grub bootloader on the pen drive (for example, /dev/sdb) rather than your hard drive.
The two methods above will take up less space on the pen drive as well as putting less wear and tear on the device. The method I describe is, however, useful in certain situations, for example if you want to install a custom kernel.