DesktopLinux report that the new MEPIS 6.0 beta has LiveUSB support.
As for the USB key support, the MEPIS System Assistant reportedly can now install either the 32 or 64-bit version from a CD to a USB key. According to Woodford, “it will also reformat the key so it will be properly recognized on any machine that can boot from USB key. This should only be done with a high-speed key. Unfortunately the key is incompatible with MacTel firmware, so this will only work on a PC.”