Then it's quite obvious it didn't work. Has it ever worked for you with
previous versions of Ubuntu (i.e. versions without this bug)? You need
to partition the USB drive with a casper-rw partition and what not. I
advise you to do a search for a tutorial on how to use Ubuntu
persistently with a USB drive. Perhaps use 7.10 first to see if you can
get it to work without this bug.

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[hardy] livecd: keyword "persistent" results in busybox and (initramfs)
https://bugs.launchpad.net/bugs/219192
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