How can I create a custom live USB installation ISO?

You might want to look into using Cubic. It's a tool specifically for creating custom ISOs. Although I haven't used it myself, I've heard it can simplify the process.

You definitely can create your own custom ISO! If you're using Arch Linux, the archiso package is what you want. It allows you to set up a live environment that can even include your own GUI installer or scripts. For Debian, I remember seeing a guide on customizing live ISOs, but it might take a bit more digging to find the specifics. Overall, it’s not too complicated if you have some experience with Linux and want to create a custom live setup.

There's actually no need to go wild with modifications just for live booting. If you're looking to flash a custom ISO, check out the documentation for your chosen distro—Kali's page is a good resource. I think using Rufus for creating the USB is straightforward, but Balena Etcher can be better if you're having issues with it. Just keep in mind, it will take some time to get everything set up.

If you're on MX Linux, they have a built-in Snapshot tool that makes it easy to create an ISO of your current system. Plus, their Live USB maker can help you write that ISO to a USB with persistence, allowing you to save changes when running live.

I'm in the same boat! It would be great to capture all the tweaks I make for a clean install—icons, settings, and all that good stuff—into a custom ISO.

A friendly heads up: Only format or partition your internal drive if you're planning to dual-boot! Formatting can lead to unexpected problems otherwise.