portable apps and data traces...
...where data traces means "stuff left behind in buffers, the paging file, on disk or anywhere except your thumb drive or other removable media."
I have a TrueCrypted 2gb thumb drive with the PortableApps suite installed. I find myself automatically using Windows Notepad to edit stuff I like to think of as secured on my thumb drive. I have no idea what (if any) mechanisms Notepad has to avoid leaving data traces on the host system, wherever that may be, so I googled and found Steganos LockNote.
LockNote looks pretty good, it comes from a SourceForge project and so I'm assuming that it's fully Open Source which is a must for security software in my opinion.