Install OS X *to* USB Drive

Just in case you didn't know this, there are some basic partition functions in Disk Utility and linux's GParted.

I think you can run applications from terminal on the Snow Leopard disk. You would mount the flash drive in disk utility and then open terminal. The command would look something like this if your flashdrive's name was 8GB FLASH and the file name was Application stored in the first directory: If you don't want to do that you can try installing it to the flash drive.
I installed Snow Leopard to a flash drive a while ago and it was a nightmare. I don't remember exactly how I did it, but I think if you don't have a U3 flash drive you will need a custom bootloader which you can find somewhere on tonymacx86.com. Then you would go about installing Snow Leopard normally, but when it asks what volume you want to install it to you would select the flash drive. I'll let you try to figure it out, if you can't let me know and I'll look into it more.

Even 8GB drive is a bit cramped.

Get a 16GB or larger. They are cheap.

You should get a faster thumbdrive too if you plan to boot off it often.

Get the iso of Snow leopard...
extract it,
Delete all the printer drivers and all other drivers you won't need...

It should come to around 3 to 4 gbs. than use disk utility or whatever and re create it to an iso or whatever and throw it in your flash drive.