USB Stick shouldn't be a problem.

I don't think you have to make the usb stick bootable (but there are instructions out there such as http://blogs.oreilly.com/digitalmedia/2004/10/utility-to-make-usb-flash-driv.html and I've used the HP method in the past).

Just copy everything off the windows 7 dvd onto the stick, and run setup file (which I assume is setup.exe). This should start the Windows 7 installation sequence and off you go. It will completely erase your existing setup, including any trial / free apps, although given most of the apps they give away these days I wouldn't consider this to be a negative effect!

What I would do, however, before starting off, is go to the Toshiba support site and download the latest windows 7 drivers for your netbook and make sure they are also on the USB stick. If possible I would try to unzip or expand the files as well so that if Windows 7 feels the need to search for a driver it can just scan the USB stick. There's a freeware utility called Universal Extractor which so far hasn't failed to extract install/driver files from installer packages, here: http://legroom.net/software/uniextract

Alternatively get yourself a USB DVD drive with the money you saved getting such a good deal on Windows 7 in the first place!

Hope this helps