• Get the grml iso
• Mount the iso loopback (e.g. mount -o loop grml_small_0.4.iso /mnt/grml-iso)
• Make FAT16 filesystem on the usbstick (e.g. mkfs.vfat -F 32  /dev/sda1)
• Create a disklabel (e.g. dosfslabel /dev/sda1 GRML)
• Mount the usbstick (e.g. mount /dev/sda1 /mnt/external1)
• Copy everything to the usbstick (e.g. cp -r /mnt/grml-iso/* /mnt/external1).
• Move all files from /mnt/external1/boot/isolinux/ (mv /mnt/external1/boot/isolinux/* /mnt/external1)

and the files linux26 and the minirt.gz (since grml1.1: initrd.gz!) from the directory named like the grml-flavour (/boot/grml, /boot/grmlmedium, /boot/grml64,...) to root of usb-stick

         in /mnt/external1, mv isolinux.cfg to syslinux.cfg  #I am not sure if this is required, though

• the files linux26 and initrd.gz must remain in boot/grmlmedium  # this is what is said in syslinux.cfg
  
• Umount the usbstick and the grml-iso
• Run syslinux on the usbstick (e.g. syslinux /dev/sda1)
• Check if the usbstick has an valid mbr, else dd if=mbr.bin of=/dev/sda (mbr.bin is in the syslinux package, usually installed in /usr/lib/syslinux/mbr.bin)
• may need to set the bootable flag using parted (or fdisk)

/mnt/external1:


addons
f1
..
isolinux
isolinux.bin
syslinux.cfg
ldlinux.sys
live/
   filesystem.module
   grml-medium.squashfs

boot/grmlmedium
  initrd.gz
  linux26