Yep, just make two partitions and put a system folder on each. OS 9 will fit in a couple of hundred MB or so (possibly less, I can't remember exactly), 7.6 in about 25 MB, both assuming you install only the system components needed for your Mac as opposed to a universal system with tons of extensions you don't need, and (in the case of 7.6) 68k code. Note that 7.6 actually has a bug in the installer - don't select Cusom Install as that in fact installs a Universal system - Easy Install will install a system just for that Mac, and you then have to go through it and manually delete the bits that you don't want, to save space.

Would the USB in fact work in 8.1, given that the first iMacs shipped with 8.1 and they had USB?
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Main system: custom C2D 2.66GHz tower/4GB RAM/2600XT 512 MB/500GB HD/XP Pro x86+Vista Business x64
Main Mac: Beige G3 minitower (Sonnet G4 500MHz/640 MB DVD/USB/Radeon 32 MB/OS 9.2.2+10.4.11)