Persistant File System vs Installation onto USB stick

I think the persistent file system only doesn't delete data that already exists in the SquashFS file, ie. what's already there by default. So if you try to uninstall, say, Firefox, then you won't get space. However, if you install a new program, like Pidgin, and then later uninstall Pidgin, then you will free up your space.

So if you're only going to install and not going to remove what you've already installed, then persistence is the best option is to use a persistent file system, because if you do a full install then it'll take up more space. Full install takes up more space because when you do an install then it uncompresses what was in the (highly compressed) SquashFS filesystem.

If there are some programs in the default ISO that you are not going to use, then I suggest you use UCK (Ubuntu Customization Kit), which lets you customize the Ubuntu ISO, to remove those programs and maybe install/update any programs you want to use. That way all those changes will be in the SquashFS filesystem as well, so everything will be compressed and you'll have more free space left at the end of it.

This is what I have been doing for some time now and it's been working nicely.