The recovery diskette is just a bootable disk to get the ball rolling. I have never used Microsoft's backup utility, so I don't really know how well it works. I backup to writable dvd's using the Acronis backup utility. It's not free, but I have used it to restore my entire system after a disk swap.

Actually, I wonder how you can backup to a thumb drive. You must have a small C drive or a very big thumb drive.