Using an ext2 USB Stick

This setup is very similar to using vfat formatted USB stick. The major differences are

The disk layout is

/
  extlinux.conf
  extlinux.sys
  initrd.img-2.6.18-4-686
  linux.tgz
  lost+found/
  vmlinuz-2.6.18-4-686

that is all files are located in the drive's root directory. With extlinux you can put the files into a subdirectory, see the extlinux description for details.

A working extlinux.conf is

default vmlinuz-2.6.18-4-686 initrd=initrd.img-2.6.18-4-686 im=linux.tgz

timeout 100
prompt 1
ipappend 1

label linux
  kernel vmlinuz-2.6.18-4-686
  append initrd=initrd.img-2.6.18-4-686 im=linux.tgz

When running extlinux to install the boot loader don't forget that you have to do this on the mounted filesystem, again see the extlinux description if you are unfamiliar with extlinux.