I can't speak of experience for a real pendrive. However, I have installed elementaryOS just a week ago on an external hard drive. I have to say that it works like charm for the moment. In contrary to a persistent live os which I never made succesfully. But that might be a case of not trying hard enough.
Three things come to mind:
- When installing eOS, I had to remove the harddisk of my pc as the installer kept messing up the bootloader on that disk instead of putting a new one on the hdd.
- Make sure not te make a swap partition on the usb drive. I've read multiple times that it wrecks your thumbdrive. I don't know about a swapfile, but sadly you need one of the two. And that is the reason I choose a hdd I had laying around. No need to worry about wear and tear of excessive writing.
- You can't install from a installation. So if you choose to install eOS on a pendrive, you will still have to make a live usb (possibly without persistence) to be able to install it on your computer. But then again, you needed when to install eOS to the hdd on the first hand.
A few other things. Linux is perfectly able to read FAT32. so formatting is not really a problem. I has however the restriction of 4Gb. A ext4 filesystem is able to handle larger persistence files.
Another thing to think about is usability of your thumbdrive if you still use windows. You need a fat32 or ntfs partition as first partition of the drive if you want to use the remaining space in windows. Windows has no ability to detect a 2nd partition or an extX parition.
As far as size goes, I made a eOS live usb on a 4Gb stick. The image only uses about 1.3Gb of that space. So i'd say 8 or maybe 16Gb is plenty for trying it out. Even 4Gb would be sufficient if you keep your files somewhere else. On the other hand, a full install required 8Gb of my hdd. So you would need a pendrive of at least 16Gb to ensure the install fits on the drive.
The usb 3.0 as absolutely an enormous advantage. The usb2.0 live install is almost terribly slow. The usb3.0 full install is very usable. Not much more delay than a computer of maybe 2 or 3 years old.