Imprinting Bootable Images to USB Devices (Windows)
From DSL Wiki
This is how to install DSL to a USB Key from Windows XP (98,NT,2000?) workstation without burning the ISO and without having to boot into DSL from the CD and partition the USB key (of course if you want to partition it you'll have to use a partitioning tool, cfdisk, or something else like that).
Procure USB Key and make sure it is formatted with FAT (FAT16 or preferably FAT32), just to be sure its working with windows. You can do it with Windows Explorer or Command Prompt.
Download the images necessary (as of this writing, bootimage 0.8 was used and filesystem image 0.9.0.1 was used.) and also download WinImage (a shareware program -- download it), and install Daemon Tools or some other ISO viewing/manipulating program.
DSL images necessary are:
dsl-x.x.iso (x.x. is for version used)
Open WinImage. Select the File - Open, navigate to and select the boot image you wish to use. Select Disk - Use removable disk (x:) with x: being the drive letter of your USB key you wish to install DSL onto.
In newer versions of DSL first download bootfloppy-usb.img. Open it with WinImage. Select Disk - Use removable disk (x:) with x: being the drive letter of your USB key you wish to install DSL onto.
Select Disk - Read Disk / Write Disk. It may say "image must be resized" blah blah. Do it.
In newer version of WinImage just select Disk / Write Disk or use shortcut Ctrl-W. It may say "image must be resized" blah blah. Do it.
Once that is complete, view the USB drives contents in windows Explorer. Mount the filesystem image to another drive. The filesystem image contains a directory called boot/. You can overwrite the files in the root of the USB Key with the files from boot/. This basically replaces bootimage 0.8 (since it seems to not be updated with the system release) with what I'll just call bootimage-current. (basically the boot files for whatever filesystem image you're using) In this case, 0.9.0.1.
In newer version of DSL first download dsl-x.x.iso (x.x is version number). In WinImage open iso image you dowloaded and then select Image / Extract (Ctrl-X). You are asked to select Path. Use letter representing your USB key (previously you wrote bootimage on the same USB key). Check option Extract with pathname and click on OK.
That's all, you are ready to go (skip next steps)!
Confirm overwriting of the files. Assuming your bios is up to date, and you've read a lot of the other facts on making sure your usb key will work with your bios, etc, then all you should have to do is reboot and set the USB drive as the boot drive. DSL boots up, loads, and thats where I'm writing this from.
For more help on customizing your DSL install check doom4's post in this forum about DSL on USB-stick HOWTO It also goes over some DSL basics that I didn't cover.
For the record, stay away from cheap knockoff USB keys...they're fine for windows and stuff like that but apparently it doesn't like DSL.