Using the live CD I installed Puppy Linux (puppy-4.00-k2.6.21.7-seamonkey) on a 2GB USB stick (ext2), it works fine but will not boot off USB (I tried various boot-loaders). It will boot when formatted to FAT16 but when I try to install GRUB boot-loader, I get "this is not a Linux file system". I know booting from USB works because I have booted other versions of Linux successfully.

USB: Crucial Gizmo
MB: Abit AN7
RAM: Crucial 1GB

install isolinux into formatted USB

google is your friend

I tried it and I have given a step-by-step tutorial in my blog.
Check it and verify your steps, http://asprakash.wordpress.com/2008/...r-puppy-linux/

-Prakash
http://biopuppy.org
http://electronica.org.in
http://ethicstech.in

a very long guide.
I will tell you to first burn puppy in a CD-RW (because you can use it again)
Then use the puppy universal installer, and select the USB installation option.
Then when you have proceeded with the intsllation as per the instructions, you will get an option to modify the boot record, at that time choose to change the boot partition.
Then from the list select mbr.bin (i had success with this, and i tried this one only, you may try the others)
And there you will have a bootable USB drive.

If you are going to use the drive with windows the dont forget to hide the files from windows to stop accidental deletion of the copied linux files. Else when installing select a seperate folder of puppy installation and hide that.

This works.

timeout 30
default 0
#
WinXP on HDD
title Windows XP on hard disk
map (hd0) (hd1)
map (hd1) (hd0)
rootnoverify (hd1,0)
makeactive
chainloader +1
#
title Puppy on bootable USB
root (hd0,0)
kernel /vmlinuz root=/dev/ram0 PMEDIA=usbflash
initrd /initrd.gz