Yes it is possible.
If you're booting from the USB, you don't want to repartition the whole thing, you just want to recreate the loopback casper-rw partition.
I've just done it with a Karmic Koala USB stick from 2009. Current ones may work a bit differently (I've been on a bit of a holiday from Ubuntu the last year or so).
Enable expert mode and remove "persistent" from the kernel boot command line. Then it won't even try to use the casper-rw file for persistence (it will use a ramdisk overlay instead).
Say your usb stick is mounted at /cdrom (for some reason that's what I got).
You will need to do
sudo mkfs.ext3 /cdrom/casper-rw and prompt it to proceed even though the file is not a block device.
If it complains that your USB stick is mounted read-only, use
sudo mount -o remount -o rw /cdrom first, to make it read-write.
You can also do the mkfs command line on any other working linux system where you can mount your USB stick.