installing to removable drive safe

Now I just tried to install my Vista onto a removable 40 gig USB2 drive, it copied the $WINDOWS.~LS to the portable drive but then the $WINDOWS.~BT to my C: drive and of course I only have 10 gigs for my C: drive out of a total 350gb. Thus I wanted to have the install on a portable/removable drive. Is it possible that it isn't reading the drive on boot up or? The install still went to the C: drive and tried to go over it but I rolled it back. It even had the "update previous OS" blacked out when I did the initial install and only gave me the option to install it to a new drive, which I chose as my 40gb. Any clues? Can I copy the $WINDOWS.~BT folder over to my 40gb and do it that way or? Cheers for the help guys!