Saturday I was helping Matthew create a Live Ubuntu USB stick. We succeeded but for some reason persistence was not working and I could not figure out why. I did the same thing here at home and persistence works fine. In fact, I think I know the answer now. Mathew was using a 16 GB flash drive and wanted the rest of the drive used for persistent storage.
The problem was, I believe, that the flash drive was formatted for FAT32 which has a file size limit of 4GB. It appears the utility to create the LiveUSB ubuntu stick creates a special file to use for the "overlay" (my term) file system that is merged onto the read only filesystem from the Live image. Since we were asking it to make a 14.4GB overlay file on a FAT32 partition, that part of the install failed silently and persistence was was working.
Mathew, I believe there are several ways to resolve this with the simplest being to only ask for 4GB of persistent storage. The rest of the stick should still be usable though you may find it handy to make the rest a separate partition and mount it within the LiveUSB Ubuntu. You should even be able to make the mount persistent.
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Dazed_75 a.k.a. Larry