If you have enough RAM to overlay a writable (and volatile) filesystem
in ram over the readonly filesystem on the USB drive, to hold swap, and
to give SBS and the OS enough "normal" RAM you should have a very fast
system. I guess 4 GB begins to put you on the safe side (unless you,re
running a headless/minimal OS). Could be much less, Touch only runs
with 256MB or RAM AFAIK. 
There are kernel options at compile/runtime that will let you specify
the way the Linux kernel manages RAM. On a desktop it will use up all
RAM to cache old pages and fill the swap; on an embedded machine you'll
try avoiding swap (or removing it) and discarding old pages quickly, as
everything is in RAM anyway. 

I'm not up to speed on the embedded distributions. FreeNAS will work
like that (and persist settings to the USB key, nice) but this is BSD
with a web interface so you'd have to rely on a special package of SBS.
Michael usually packages one. 
You could also look at Voyage Linux which is a Debian distro tweaked
for embedded environments. Or go wild and use Debian's Live USB package
to install a custom system on a USB key (probably the most
work-intensive option). 
BTW, In this kind of setup you'd better not use hibernate ;)


-- 
epoch1970

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