Hi,
I came across a Linux distribution that is portable and persistent called Slax. I have been looking for such a distribution for quite sometime, and I found it.
Slax allows you to install the OS on a portable flash drive save changes on the same flash drive. Of course, you can choose to install it on CD or even on hard drive.
You can find more information about Slax at http://www.slax.org
Thanks
Patrick,