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"
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