I just discovered that the CD of Trisquel 3.0 RC

 http://devel.trisquel.info/trisquel-sugar_3.0RC_i686.iso

"Install to Hard Disk" option on initial boot screen recognizes and 
installs to a USB.
Minimum= size 2GB
USB has persistence and is Sugar 0.86.0

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DANGER: YOU MUST REMOVE LAPTOP HD FIRST !

final message on writing to USB is:

running "grub install (hd0)"

USB does not boot if install is done in VMworkstation where VM HD is (hd0)

You could damage the laptop's HD if it is present.

(This settig does not appear to be possible to change)

Still investigating....
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