you can keep everything you do on the memory stick yes. it remembers documents, installed programs, everyting. they don't always work though. old computers don't boot from USB so maybe the laptop you've got doesnt either?
easiest thing would be to just install linux and let the installer do some partitioning and setup grub. installing linux will not affect the hardware warranty. if they tell you it does, which they probably will as every big PC manufacturers warranty department lie continuously, they dont have a legal leg to stand on.
"your harddrive failed because you installed limewire".
i've heard that before!