This depends on how hardcore you want to get with your flash drive. If you feel like diving into linux, you can run an entire OS off of it. To do this, check out unetbootin. This awesome app will install an OS such as ubuntu, fedora, etc straight onto your drive without making you do anything at all. It even downloads the OS for you. Let me know if I can be of more help.
Thanks. But it seems a bit difficult for me. and I mainly run on Windows. One of my friends recommended me to use Prayaya V3. It can launch any app and game off a USB and It is for windows. So I think I will have a try on it.
Basically, it allows you to launch most apps and games off a USB drive BUT not officially claimed any app and game.
A few apps that I have tried on it: Firefox, Opera, Safari, MS office, Nero, Winrar, Virtual DJ, Skype, Plants vs Zombie, KM Player, Yahoo Messenger, MSN, Picasa. These are my daily used apps. And they work perfectly.
However, there are some that seems not working on it like Google Chrome, PhotoShop, Coreldraw.
Also I found that Prayaya V3 seems to write registry into USB but not a host computer. I think that is why it can launch most apps. a good advantage is that not any trace will be left on a computer if you run it off a USB drive.
Generally, I think it is a cool ware that is worthy of a try. I like its cool interface, cool feeling switching between two systems though actually not. However, if you just want to run common apps off a USB drive, I think PortableApps.com is enough for you. If you want to go furthur, Prayaya V3 is a good try.
If you like, I would like to release more information about using it.