How to avoid a kernel panic during Lion install to USB disk? I downloaded Lion from the Mac App Store, and have been trying to install it to a 32GB USB flash drive. I want to be able to boot my Mac from this disk to use Lion and test some things out before I upgrade my Mac's main hard disk.

I formatted the drive (GUID partition map) per the Lion Installer's instructions, and was able to select it as an installation target. On three separate attempts, the installer begins installing files and gets about 2/3 of the way through before being interrupted by a kernel panic.

I had the Installer Log window open, but nothing interesting/unusual appeared there. After rebooting, I'm able to view it at /private/var/log/install.log on the target disk, the last message is simply a status message about extracting a package. No warnings or errors appear in the file.

The last line of the install log is:

Jul 31 17:02:54 brs-macbook-pro OSInstaller[358]: PackageKit: Extracting file://localhost/Volumes/Mac%20OS%20X%20Install%20DVD/Packages/German.pkg (destination=/Volumes/Skunkworks/.OSInstallSandbox-tmp/Root, uid=0)


The preceding lines are more of the same.

The disk is a brand new SanDisk Cruzer 32GB.

Please note that I am NOT trying to create a bootable installer disk. I want to use the disk to boot into Lion, log in, and use the computer.

Any ideas why it might be failing and how to correct it?
Seeking clarification

Please add to the opening question a note of whether the panic occurs during: 

a) the preparation stage of installation (before the first automated restart of the system)

or

b) post-preparation, the installation stage (between the first and second automated restarts). 

Logging the preparation and installation stages of installation

Screenshots at http://www.wuala.com/grahamperrin/public/2011/08/01/a/?mode=gallery demonstrate the Installer Log window in foreground whilst Mac OS X Installer runs — the installation stage. 

During either stage (preparation or installation) you can present a log window by keying:


command-L


With luck, you might see — possibly greyed-out beneath the foreground detail of the panic — the point at which panic occurs. 

At the root of the volume to which installation is attempted: if installation fails you may find a directory:

Mac OS X Install Data

Within that directory, a log. If present, that log may be informative to you, but not as useful (to readers here) as the .panic file. 

PRAM, kernel panic information and the .panic file

Apple's Mac OS X: What's stored in PRAM tells us that recent kernel panic information is stored in PRAM. If the first normal start following a panic does not present the customary dialogue, you should wonder whether/how that information was lost from PRAM. 

If the kernel panic occurs during the installation stage — and if the subsequent start defaults to attempt continuation of the installation, or Mac OS X Utilities (not a normal start) — and if you are without an obvious interface to kernel panic information — then my hunch would be that whilst started in that special mode, the path to which a .panic file might normally be written is read-only … 

… if that's the case and if you're comfortable at the command line, maybe start in single user mode following the panic then use the following command to see whether panic information is legible on screen: 

nvram -p

(For the number of ifs above, apologies!)