http://www.linux-live.org/
Linux Live scripts version 6 are the most innovative scripts available. AuFS
provides better stability compared to old unionfs, squashfs with LZMA
support provides great compression ratio and amazing decompression
speed. What's new compared to old Linux Live scripts v 5?
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aufs is used instead of unionfs, brings great stability and features
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squashfs is patched with LZMA compression, so compressed filesystems are 30% smaller
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no need to patch your distro's startup scripts in order to remove remount of root rw
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no need for udev as the devices are created during live startup
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CD tree is simplified, you may call your distro whatever you like
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better handling of booting from USB device
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added a script to create bootable disk (including USB) in Linux and Windows
If you're just looking for a working Linux Live system,
visit http://www.slax.org
How to build a Live distro
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Install your favourite distro to disk partition, or into a folder on your
existing system. Slackware is recommended but not required.
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Build aufs kernel module and squashfs kernel module (optionally patched to
support LZMA) Make sure you are running the same kernel you used to
compile modules
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Remove all unnecessary files (for example man pages and all other files
you don't need), to make your Live Linux system as small as possible
(this step is optional).
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Download Linux Live scripts from this website and unpack it in /tmp
Read ./DOC/requirements.txt to find out what linux-live scripts need
Edit .config file if you need to modify some variables
Finally login as root and run ./build
Live distribution's 'directory tree' will be created in /tmp/live_data_1234
where 1234 is a random number
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To make ISO image, run make_iso.sh
To make a bootable (usb) disk, run bootinst.sh