Does anyone know anything about Live CDs?
The idea of having a computer boot just to play Aquaria gets me hot and bothered.
Questions:
* just... how the hell is it done?
By compressing/decompressing a whole desktop environment and loading files from RAM and/or CD. Linux distro's (especially Knoppix) are good at on-the-fly hardware configuration so you might want to use Knoppix as your base.
* anyway to access the hardrive and/or USB drive? (save files, user settings, etc)
Yes. Should just work if you give the user the option to specify where to save his/her stuff. And if HD/USB autodetection worked flawlessly

Since it's your own live cd environment, you could probably make the usb device always point (mount) to the same location for easy in-game access.
* advantages? disadvantages?
first of all: what is the advantage according to you? I don't really see a big advantage at having a game on a live cd. I just want to pop in the cd, install it and play

OR: play it directly from the cd without installing as an extra alternative. But I don't want to reboot..
Disadvantages: disk access is slow, available ram gets lowered because some is occupied by the live system.