Just did a bit of research and looks like WHS requires 65GB of space to install, so really that rules out a USB stick.
The boot drive can be in any location, but if you are looking to expand at a later date, then I'd suggest in the Optical bay at the top, but you will need to update the firmware to a non official version to make use of the full speed on the port.
The other option to consider is to run the OS drive in RAID 1, and mirror it if you wanted a bit more security.
In terms of keeping the OS drive free of any other data, the easiest way would be to partition this off so have an OS section and a data section, but use it for non essential data if you are not going to mirror it in RAID 1.
The HDD prices at the moment on 2TB drives are silly, most of us got ours before the floods, but some weren't so lucky..
http://www.tekforums.net/computing-technology-web-communication/flooding-hdd-prices/