How to make a live CD/DVD from your harddisk installation - Ubuntu Forums if you want to build your livecd like the way how you installed on your hard drive.
you need some indepth info about the working process and init process in depth.
and then when you are done? you can use casper and build it and if you are still hungry for more? then you can use remastersys.
i am right now using a livecd. i use the livecd for IRC, IM, ordinary browsing and some work which may spoil the hdd setup or infect the system with rootkits.
you will face 2 major issues here,
issue one: if you use squashfs w/o lzma then you will compress only 33% original size and if you use squashfs-lzma then you will compress max 25% the original size. these days dvd's are cheaper as in sense "price to space ratio" so you can custom build your hard drive clone and boot of livecd. i will recommend you not to use grub2, use grub-legacy or stick to lilo or syslinux.
issue two: you will have a hard time and a hard luck running apt-get update && apt-get upgrade && apt-get dist-upgrade since you are running it off a live cd and even if you use kexec to a right-left-fly-by you may run out of space or operating system malfunction, because many files there are hard linked and which is hardest to upgrade in a live environment.
i am not discouraging you to build it, but consider these as precaution and things to look out before making one. i use livecd 90% time i am on the internet or when i am building LFS again just for fun!
and good luck and happy hacking.
-paul