A normal windows installation will
wear out the flash disk in no time.

You have me puzzled here. How does it "wear out" solid state?


You'll need XP Embedded to make
sure it does not write registry, log and swapfiles files to the
flashdisk "millisecond".

What is wrong with writing data to a flash drive? I use them to move
data between computers anyway. They can hold with power off and
unplugged.

Unless I am misunderstanding what you are saying?