Windows-on-Stick

I can guess what you're thinking.

1) Illegal to do a portable Windows OS
2) A Virtual Machine of Windows would be too big and slow
3) A Virtual Machine can't be portable due to kernel drivers

I think we can get around these issues, read on...

This is my first post and I'm very new to portableapps.com so don't drill me too hard if this is way off. I'll lay out my idea and you can let me know. I'm not putting this in requested apps, as I actually plan on developing this if it sounds feasible.

• A full Windows install is likely illegal, but I don't need a full install and maybe others don't as well. I'm thinking about Windows PE, which is available for free as a component of the Windows Automated Installation Kit (AIK) to all Windows licensees. This license not only applies to deployment, but also to the use of Windows PE for recovery and troubleshooting purposes (which is my intent). I was thinking of the Windows 7 AIK myself but the Vista / Windows 2008 AIK is available as well. We can use common methods for creating a bootable Windows CD - WinBuilder.
• Since WinPE is designed to be light weight, it should be much smaller and faster than a full Windows install. Light applications that require an install could be done in this environment.
• I've been looking at the forums for the discussion of creating a portable virtual machine. Portable Virtual Box (also available here) appears to be usable, but looks to require Super User mode and loads/unloads drivers in the host OS. Virtual PC or Moka5 Player looks like it could be usable, but would also load/unload drivers in the host like Virtual Box. So this lead me to Bochs and QEMU, which I think would both provide the portable emulation needed to virtualize WinPE without the driver issues of the larger VM tools. At this time, I'm leaning toward Bochs, but I don't know either product so I'm open to suggestion.

Would love to hear thoughts and would appreciate and direction and help.