I'm interested in creating a portable Windows installation and my PCs only have USB2. I never did this kind of thing before so I am concerned about a USB flash memory stick or an external hard drive not being fast enough to be useful. Can you run Windows from a USB2 drive?
USB2 theoretical maximum speed is 480Mbps (mega-bits per second) which equates to ~60 megabytes per second. With other devices and protocol overheads the effective speed of USB2 is somewhere around 40 megabytes per second.
This is a workable speed, not perfect, but definitely usable.
Flash drives (especially cheap ones) will usually be half that speed.
One problem with booting from USB is that most operating systems will not work happily with it without some fancy footwork going on. Actually using an external drive to boot Windows is not supported and certainly isn't an easy thing to do.
From Raymond Chen:
Microsoft has a guide (Word Document) on how to create a Windows To Go drive.
This is only supported by Windows 8 Enterprise, not any other edition.
As far as speed is concerned, yes, it ought to be enough, even if the boot itself will be really, really slow until the caching catches up.
But you will have problems with everything else: software, hardware, BIOS, and license.
If you plan on replacing a boot device with an USB device (because it's easier to upgrade, sturdier, no moving parts, less power hungry, etc.), you might be better served by ATA Compact Flash (CE-ATA) or SSD. I have seen kiosk installations (albeit running Linux) where the boot disk was actually an external CF (later a SSD) mounted on an ejectable bracket, so that "system upgrade" could be performed by DHL'ing a replacement boot disk to the customer, who could do the upgrade itself (we also had some theft problems due to the ease of removal of the disk, which you might need to consider).
It would be fast enough (it only matters for startup because after that the OS is mostly running in memory), but moving the USB stick between PCs would violate the licence terms with Microsoft. An Operating System is licenced for the computer it runs on. If you are sticking the USB stick into other computers it is not licenced for those computers. It also may not run properly.