I can't find the links right now, but at least with Linux, you use what's called a "Live disk." With Slackware and such, it's probably more commonly known as a Live CD. The good versions I've found are Flonix (pretty) and Movix2. They're very minimal, of course (could fit on a 64mb flash card), but they will work. I was looking into all this for an in-car media system.
BTW, if you do searches for any of those systems or "Live CD," there should be segments on using bootable floppies as well. I'm not just rantin' here.
Like I said, though, I have no idea how this would work for Windows-based systems. Maybe you could tweak the "boot.ini" file to point to different devices?