I concur to what jpolizo wrote. I spent the whole day playing with this
setup (i.e. Gutsy on 1GB USB as per
http://www.pendrivelinux.com/2007/09/28/usb-ubuntu-710-gutsy-gibbon-
install/) and noticed following details when booting into persistent:

1) some settings are stored, some not (like new user). Even for 
Appearence->Fonts some font settings get stored (almost all sizes) and some not 
(AA setting).
2) mtab was consistently corrupted after boot
3) some files are created with access mode 0000 (i.e. .ICEauthority-c, or some 
.gconf files)
4) modes for those files with 0000 can sometimes be changed sometimes I got I/O 
error
5) when the system is shutting down, at certain moment it displays the message 
"Remove the disk and press ENTER". When removing USB at this point I observed 
immediate errors on block I/O (on console) and casper-rw got completely messed 
afterwards.
6) even after forementioned message there is some activity on flash (led 
blinks) before shutdown.

All these factors basically makes the system degrade so fast, it does
not even survive few reboots without loosing some critical data.

-- 
failure to umount local filesystems - gutsy tribe 2
https://bugs.launchpad.net/bugs/125702
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