They make this easier and easier all the time.

I'm impressed with it so far btw, it detects most of the hardware right away and, even though you might not use it often, it's handy to have in case windows fails completely and you have to recover some of your files before formatting.
Easy Way:
Ingredients: 1xCDROM, 1x USB Drive*, 1x Copy of
Ubuntu 8.10, 1x Copy of
ImgBurn (optional if you already have an app like Nero that will burn .iso to a disk) and a copy of the
HP USB Formatting Tool* a 1GB drive is enough, but ideally you want to use a 2GB drive or larger so you have room to save your files and settings.
Method:
Burn the .iso to a CD
Quick Format your USB drive with the HP tool (Windows formatting has issues), don't tick Make Drive Bootable.
Boot system from CD (Default 'Try Ubuntu' option (doesn't change any system files))
Insert your USB drive
On the Ubuntu desktop click System>Administration>Create USB Startup Disk
Crank the Stored in Reserved Extra Space slider up to the top
And hit Start
Job's a good un.

With the persistent drive, it means that your documents and settings will be saved to the drive every time.
Obviously you can't go overboard with only a few GB of space available, but it's handy for remembering your bookmarks, network settings etc..
I won't mention the other method at the moment, since the only benefit is that it creates the bootable drive from the .iso image and it has the drawback of not being a persistent image and also involves shuffling some files around on the drive to make it bootable.

*edit*
Of course, if you have a working optical drive you could boot off that anyway. But some Netbooks and Tablet PC's don't have one.
And it isn't be a bad idea to have a working OS in your pocket if you have relatives who have a habit of calling you to tell you their PC is infected (again) and it's stopped working (again).

I'll do one on how to get XP installing off a USB drive soon..that's also pretty handy.
