Joe,
In response to your original question, I have unRaid installed on a 2GB Sandisk.
Around Thanksgiving I found a 2GB Sandisk Cruzer Micro for $13, so even though it is overkill for this, I bought it. I did have some issues trying to get it to run unRaid. The issue was the "U3" capabilities of the drive. Sandisk adds software and maybe a partition so that when you plug it into a Windows machine, it comes up as two drives--a CD-ROM and a flash drive. You cannot delete files off the CD-ROM part and when I tried to copy the unRaid files to the USB part, it would not boot in the unRaid server. I went to Sandisk, found software that will remove the "U3" capabilities http://www.sandisk.com/Retail/Default.aspx?CatID=1415. I removed U3, copied the unRaid files to the now normal Sandisk flash drive, plugged it into the unRaid server, picked the correct boot drive in the BIOS, and assigned the hard drives, and it works fine.
Is your usb flash drive a U3 Sandisk?
Paul