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I want to set up an Ubuntu VM in my machine, but downloading the ISO is too much. I do have a Live USB containing Ubuntu. How can I install it?

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+1 Good question. Why don't you try it, and then tell us how it went as an answer? It'll teach you something and gain you rep and help other people with the same question. –  Nifle Sep 28 '12 at 21:04

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Well, without knowing what flavour of VM software you use, its a bit difficult to say. Both Vmware player and virtualbox don't support it out of the box however. It should be pretty easy to get around - you'd need to grab a bootloader that would bootstrap booting off the USB key.

Plop bootmanager should do the trick - its a bootloader you can download as an ISO, is small, and supports booting off various media even if they system its on doesn't directly.

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