First thing to decide is the USB key’s file system. If you just want to use it for booting Linux images then go for Linux file system. If you also want to use it to store other data and this data to be visible to other operating systems then go for vfat.
When the USB key is mounted go to the mount point and create the following two folders:
mkdir boot iso
After this execute the following command (Install GRUB to MBR of USB stick)
#grub-install --force --no-floppy --root-directory=/mount/point /dev/sdX
Copy the ISO file(s) to iso folder on the USB key.
Create/Change the grub.cfg file in boot/grub folder on the USB key. Click here to see an example of the file
The menu entries vary for different Linux versions. Some of the versions you can see in the example above. For Ubuntu/Mint/Knoppix/Gparted/Grub Rescue Remix/Parted Magic/SystemRescueCD check here (note that examples are made for booting from hard drive – no need for (hd0,X) options)
Sources:
[1] – http://www.circuidipity.com/multi-boot-usb.html