Would it be possible to create a low file size Windows Thin PC Live Environment that you could use for a CD or USB?
It's certainly possible (just as you can get regular Windows 7 to boot from USB), and also includes write filters (EWF, FBWF) that are useful for booting from flash-based storage or read-only media. However, Windows Embedded Standard 7 (which Thin PC is based on) might be better suited for this if you want to build a custom Windows image. It's much more customizable and already includes features that allow it to boot from USB or SD cards. Depending on which features you include, it may be possible to cut down on the image size even more.