The trick with BT4 is to move the bt4/casper folder onto the root of the usb stick. Apparently /casper contains the compressed image of the disk. Once I did this the above config worked great. This is also why some people are complaining two different distros that both use casper cannot co-exist. There can be only one /casper folder on your stick so only 1 casper distro can be used at one time.
BT3 does not use the /casper folder so you just need to have a /bootbt3 and a /BT3 folder in your root. I am taking a different approach and structuring all my distros in the form /distro/boot so the root of my drive is cleaner. In this way I have the following folders for Backtrack 3 & 4 on my stick.
/BT4/boot
/BT3/boot
/casper
Of course this requires modifying your menu.lst to the updated folder locations.
Hope this helps. Cheers.
