Then it's quite obvious it didn't work. Has it ever worked for you with previous versions of Ubuntu (i.e. versions without this bug)? You need to partition the USB drive with a casper-rw partition and what not. I advise you to do a search for a tutorial on how to use Ubuntu persistently with a USB drive. Perhaps use 7.10 first to see if you can get it to work without this bug.
Then it's quite obvious it didn't work. Has it ever worked for you with previous versions of Ubuntu (i.e. versions without this bug)? You need to partition the USB drive with a casper-rw partition and what not. I advise you to do a search for a tutorial on how to use Ubuntu persistently with a USB drive. Perhaps use 7.10 first to see if you can get it to work without this bug.