We tried this with a 4GB drive and Disk Utility would not burn the Lion install image saying it was too small. You will need a USB flash drive of at least 5GB. Do this before you install Lion but after you download it from the Mac App Store. The only way to do this is to use your computer’s restore disk to reinstall Snow Leopard or an earlier version of OS X. But the only way to do that is on a system that doesn’t already have Lion installed. Some other sites have posted that you can re-download the file. If you already upgraded to Lion the install image is deleted by default and it is already too late. In order to do this you will need the OS X Lion installation file. A clean install usually fixes these kinds of problems. This is a backup plan so you don’t have to take your computer to Apple to fix it if the hard drive or SSD drive won’t boot anymore. While the first two and last option are good reasons, the third is the most important.
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In the case of the Flash Drive we will also show you how to put two partitions on one 8GB or larger flash drive so that you will also have all your Mac apps on the drive ready to install after you install the OS. For now those are your only two options since Macs won’t boot from an SD card.
We will show you how to create your own installation DVD or USB Flash Drive. A USB Flash drive version will become available in the future, but there is a way to get a clean install from a DVD or USB Flash Drive now with some effort.
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Apple disregarded these concerns with the release of Mac OS X 10.7 Lion by only allowing the initial release in the Mac App Store for download. Installing a new operating system over the old one can create problems with stability.