I have succeeded with this technique to replace the U3 6MB CDFS on a 16GB Cruzer Mini with a Fedora 10 i386 DVD (3.4GB+). This left a 11.5GB Removable volume.
This is with LPinstaller 1.0.2.36.
So we have a general approach on a Cruzer to replace a U3 CDFS partition with our own .iso of any size.
(Unfortunatly I then found that my BIOS does not recognise USB CDROM drives ).