Quotes below from http://aumha.org/win5/a/xpvm.php
Looks like you could do it, but if you have a decent amount of RAM, it probably won't give you any significant speed gains. And it seems to me that if you are short on RAM, you'd be better off to spend the money on more RAM than dedicating a thumb drive just for a paging file.
Where do I set the placing and size of the page file?
At Control Panel | System | Advanced, click Settings in the “Performance” Section. On the Advanced page of the result, the current total physical size of all page files that may be in existence is shown. Click Change to make settings for the Virtual memory operation. Here you can select any drive partition and set either ‘Custom’; ‘System Managed’ or ‘No page file’; then always click Set before going on to the next partition.
Should the file be left on Drive C:?
The slowest aspect of getting at a file on a hard disk is in head movement (‘seeking’). If you have only one physical drive then the file is best left where the heads are most likely to be, so where most activity is going on — on drive C:. If you have a second physical drive, it is in principle better to put the file there, because it is then less likely that the heads will have moved away from it. If, though, you have a modern large size of RAM, actual traffic on the file is likely to be low, even if programs are rolled out to it, inactive, so the point becomes an academic one. If you do put the file elsewhere, you should leave a small amount on C: — an initial size of 2MB with a Maximum of 50 is suitable — so it can be used in emergency. Without this, the system is inclined to ignore the settings and either have no page file at all (and complain) or make a very large one indeed on C:
In relocating the page file, it must be on a ‘basic’ drive. Windows XP appears not to be willing to accept page files on ‘dynamic’ drives.
NOTE: If you are debugging crashes and wish the error reporting to make a kernel or full dump, then you will need an initial size set on C: of either 200 MB (for a kernel dump) or the size of RAM (for a full memory dump). If you are not doing so, it is best to make the setting to no more than a ‘Small Dump’, at Control Panel | System | Advanced, click Settings in the ‘Startup and Recovery’ section, and select in the ‘Write Debug infor
mation to’ panel