Endagaget has a nice long article here on how to turn your iPod into a bootable drive
This week’s HOW-TO is a handy one for the Mac folks out there who want to run multiple operating systems, but not install them to their hard drive, all using an iPod as a bootable FireWire drive. This HOW-TO is also helpful for trying out new software (on another OS), running developer versions of Mac OS (like Mac OS X Server or Tiger) as well as having a way to repair your Mac if for some reason it cannot boot on its own.
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