The only reason to do this is novelty. Can you imagine how little a 256 MB or 512 MB hard drive would cost. You can get a 100 GB hard drive with a 100 MB/s transfer rate for much less than a 1/2 GB pen drive. You are thinking of sacrificing an enormous amount of speed, limiting yourself to a crippling size and spending lots of money to accomplish these things.
Dump this idea like toxic waste into a mountain stream.
P.S. before someone says, "yeah, but USB 2.0 has a 400 MB/s transfer rate" also consider things like random access speeds, etc. Operating systems were designed around hard drives (and the other way around).