Thank you for taking the time to report this bug and helping to make
Ubuntu better. This bug did not have a package associated with it, which
is important for ensuring that it gets looked at by the proper
developers. You can learn more about finding the right package at
https://wiki.ubuntu.com/Bugs/FindRightPackage . I have classified this
bug as a bug in usb-creator.  Also, I've been unable to reproduce your
issue on Ubuntu 8.10.  Here are the steps I took:

1.) Plugged in a Corsair 32GB USB disk
2.) Clicked System -> Administration -> USB start up disk
3.) Clicked Other... and browsed to my ubuntu-8.10-desktop-i386.iso file
4.) Left the default of 128MB "Stored in reserved extra space" setting
5.) Clicked Make Startup Disk
6.) Once done, removed USB disk and placed it in my Fujitsu U810 laptop
7.) Booted into LIVE environment
8.) Created a test.txt file in the Documents folder, saved and closed it
9.) Shutdown laptop and unplugged USB disk
10.) Plugged USB disk back in and booted back into LIVE environment
11.) Checked the Documents folder, and test.txt was still there

Where these similar to the steps you took?

** Changed in: usb-creator (Ubuntu)
Sourcepackagename: None => usb-creator
       Status: New => Incomplete

-- 
No persistence with USB Creator in Ubuntu 8.10
https://bugs.launchpad.net/bugs/302485
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