The new offering will be designed so that users can carry their personal computing environment — including a customized and familiar user interface, applications and data — on a flash storage device such as a USB flash drive or flash memory card. This computing environment will be accessible on Windows XP- and Windows Vista™-based computers with a USB port or flash card reader. Users will be free to work on public or shared computers without fear of leaving personal information behind, and with confidence that their personal information will be encrypted, kept safer from malware, and otherwise protected through security provisions enabled by TrustedFlash technology.
There are many caveats that come along with it – security concerns, data integrity, et cetera. The concept, however, is a good one, and one that has been tried in limited forms in the past. One interesting note about this iteration is that the data on the flash unit will supposedly be encrypted on the fly as well as having other security mechanisms via “TrustedFlash” that keep it safer than usual.
You can read the full press release at Microsoft's site.