Yes it can. I have a USB drive that I can boot a full Win 7 x64 Enterprise from. Its awfully slow, I wouldn't recommend it at all.
It was actually installed using an eSATA cable but it boots from USB and works. From experience i suspect that I would have bee nable to install via USB, but as eSATA was available at the time I used that instead.
I really wouldn't recommend it though. If you are looking for a portable operating system get a linux Live CD of some form. See - http://www.pendrivelinux.com/
If its trialling Windows on your current system, a second disk/partition dual boot process would be preferable.