I was thinking that when you sit in front of virtualy any OS a 'normal' user account has full access to there own user / home area and only read / execute access to the rest of the system.

Now compare that to a live CD and a USB flash drive, the user home area is on the flash which the user has full access to and the rest of the system is on the live CD which the user has only read/execute access to (which is by default since is is a CD!).

This would get round the situation of putting the whole distro on the flash drive and 'wearing it out' with excessive read / writes plus more PCs are CD bootable than USB stick bootable. And you probably could use the same user account on multiple distros.

I do realise that you can just use a Live distro and plug in a flash drive to store info on but if it was a proper home account on the flashdrive then dot files would be read when apps are started and so on.

Welcome to LQ. Do you mean something like DrakLive?