So, back from holiday and turning on the computer again.
What I’ve done is re-cut my 2G USB stick (using Unetbootin on my PC) with the Centos5.5 DVD .iso, effectively making the Centos Live USB. For some reason it died over the holiday.
Now booting with the “Live USB” and plugging in a second USB stick I followed the instructions http://lists.centos.org/pipermail/centos/2010-April/093806.html to make a bootable install USB stick (call this the Install USB). Usefully, the “livecd-iso-to-disk” command lives in the LiveCD folder on the Live USB stick.
Booting from the Install USB stick allows me to specify a disk-based install, using the second partition on the Install USB stick. This time I chose the “Server GUI” and “Virtualisation” modules and opted to install grub on the Install USB stick, as I know from experience that grub2 will not boot Centos.
And, yes, booting from the Install USB does boot Centos from the hard drive.