Yes, many people have done this.
There's many problems with the approach though. USB is dreadfully slow for booting, and if your doing services for others you also need to be aware that most machines out there don't boot from USB devices properly, and many other problems.
Anyway, most distributions have instructions in their support forums for creating a bootable usb, if you must go that route.
A much simpler, easier, and more compatible solution is to use a livecd, which is still slow and requires a PC with enough ram as there's no swap.
So, it's really not worth doing, at least until USB bootable PC's become commonplace.