To use a USB flash drive as a kind of boot floppy, do a USB flash drive install and copy pupxxx.sfs and zdrvxxx.sfs to the HDD. There is no need to install GRUB or LILO into the MBR of the HDD, just leave it as it is.

On the flash drive, open syslinux.cfg with a text editor, change the pmedia entry to pmedia=idehd, and save.