All Intel Macs can boot from a USB drive thanks to EFI. PPC based macs are limited by Open Firmware to booting from FW drives. Owners of the Macbook Air or the latest Macbook would otherwise struggle to boot from anything external, since neither has FW.
Easiest way is to get an external USB drive and to clone your installation via Carbon Copy Cloner or Superduper. Alternatively, you can use Disk Utility to make an image of your installation and restore this to the external USB drive.
If you can get your installation down to about 16GB or less, then you could use a USB pen of suitable size to accomodate this.
There are some commercial utilities such as Techtools Protogo, which allow you to make an emergency restore USB drive pen with a select number of disk utilities.