I couldn't get your commands to work. For my case the disk was disk1s3 (found using diskutil). However the dd command always gives an error that the of file doesn't exist even if I use touch to create a file. What am I missing?
I'm going to try and explain this step by step:
1. Download and install Onyx, this is so you can see hidden files on the Apple drive.
2. Make the invisible files visible with Onyx (Parameters tab/Finder/Misc. Options/Show hidden files).
3.Double click the Mac OS X installer .dmg file that was hidden so it'll mount to your desktop.
4. Download and install Carbon Copy Cloner.
5. Open CCC and for the source, pick the the Mac OS X installer image on your desktop.
6. For the destination, you should choose your formatted 8GB flash drive.
7. Click the clone button and it will make a bootable, system installable copy on your new flash drive. It will not copy iLife though, that step is next.
8. The reason you have to do step 7 is we need the hidden system files to make bootable for the next step.
9. Once your new drive is cloned with the installer, boot from it to make sure everything's OK.
10. Once booted back to your desktop, with both the Apple drive and your new USB drive plugged in, start CCC again.
11. Make the Apple USB flash drive your source and your USB drive your destination.
12. This is important! There's a check box on the right side under the source, click it. It say's "Delete items that don't exist on the source".
13. Before you start there should be a tiny little green light that say's the drive will be bootable. If it's red, you screwed up, start over.
14. This the final step. Hit the clone button, it will copy all the files from the Apple USB disk but leave the bootable files on your USB disk alone. It will copy and than it will verify. If everything went OK, you'll get a message that it was successful.
You now should have a working bootable copy with iLife installed on it. I've done it twice and booted several times from it, it works perfectly.
Good luck!