DamnSmallLinux has the advantage that will eat only 64MB from your memory stick (Puppy Linux, described on another page, requires a 1GB USB stick).
I have followed exactly the instructions from this page: http://damnsmalllinux.org/wiki/index.php/Installing_to_a_USB_Flash_Drive method Alternative II: Using GRUB as boot loaderThe only (no, you won't need SLED 10 (Suse) for that, it worked perfectly for me with Debian).
The only catch is not to forget to
Start the Eee PC, and in the startup screen (where it says you can press F2), press Esc. Select USB to boot