Here's a little paper I wrote on how to create a Slack liveUsb system.

http://mysticalgr.awardspace.com/?page_id=353

Check it out and comment...
updates to come..(im not really happy with the result, even if it works :P )

Sounds Good
However, you should note that since the filesystem is essentially a full hd install to USB
there will be alot of rw's to USB.

Have you then tried to .lzm it all into a compressed read-only fs?
ala Slax, etc?

I was running Sidux as you are describing running 13.0 from USB
it worked great but the USB was constantly beeing written too
when opening/closing an app etc

Is it possible to lzm the install and then boot?

Dont have a clue my friend, I didnt used .lzm on my usb-system yet and as you can see its based on LinuxLive scripts,

just like Slax, so basically it must works abit different than a simple full hd install on usb, to prevent lots of rw's to the usb i guess...

When you did ./build
does it compress the filesystem into .lzm's
like usr.lzm, etc?

or does it just leave it just like a reg install?

I thought Linux Live Scripts also compressed the filesystem?
I haven't used it yet, so dont know??

Have you played with SalixOS yet?
it has 3 install levels
console
minimal
full

I was gonna try the minimal xfce install, to USB
then I saw your post and thought why not try both at once?

Can you walk me thru Linux Live scripts a little
as there isn't much docs?

didnt tried SalixOS yet...

Yes LinuxLive build the file system into .lzm modules ("etc","usr","boot")...

the LinuxLive process is basically easy,

1:install your favorite distro on a partition
2:boot inside and build aufs and squashfs modules to kernel (or use the precompiled one from LinuxLive website.)
3:download LinuxLive scripts archive, unpack into /tmp/,
4:go into "/tmp/linux-live-x.x.x/" and see if you want to make any changes to the configuration file ".config"
5:run ./build
6:you should now have your live system's dir tree in "/tmp/live-data-xxxxx/" <- copy its contents to usb drive, run "/boot/bootinst.sh" and you're set!

hope you get the meaning