C. K. Sample III has posted a comprehensive HOWTO on running Ubuntu on the Asus EEE PC… a fully-functional install on a USB drive:

I’ve been combing over various guides and instructions online for installing Ubuntu on the Asus Eee PC, and I ran into a few kinks along the way since I don’t have a USB CD-ROM to install from and opted for a USB flash drive instead, so I thought I’d write the process out in this post in the hopes of helping those of you out there who are thinking about taking the plunge, but unsure of how it’s going to work. All of this information is available elsewhere, but I found it somewhat scattered, so I’m documenting it all here for my future self.

This is a great way to embiggen the amount of disk space at your disposal. The next step would be to get that USB drive into the inside of the EEE PC or find a really low-profile USB drive that you could affix with some hot glue so it doesn’t come loose too easily.

Ubuntu on the Asus Eee PC: Part 1 (or How to run a functional Ubuntu install off a USB drive) – Link