you are going to run into problems if you extract the whole dvd to usb and try to install from usb only, that is why i went with a ftp install. im sure if you got the right files in the right directory on a usb formatted in a way in which ydl will recognize during install, theoretically, sure. practically, it was a pain in the ass, so i went with what i was able to make work for me.
i got this to work with a 256 mb stick, and a 1gb, so i would think a 4 gb would work.
try it, it wont hurt a thing, any troubles, i will try and help out.
neat thing about the pdaxrom bootloader is it sorta acts like a grub, so if you wanted, you could multi-boot other linux flavors, either by live usb or cd, or installed to another partition on the hard drive. beat that fixstars!