...All my drives apart from the main drive are USB ports....
Vista can't be installed directly to a USB drive. You need to create a new virtual hard drive. This is done during the new virtual machine wizard. You can store the whole virtual machine on an USB drive. How this is done varies by which VMWare product you're using.
The tech speak for this VM Ware Machine is that this is the greatest thing since sliced bread. What this form of computer use needs is to be be more user friendly. Nothing about this technology is easy for the average computer user to use and I think it would benefit from a lot more wizards that simplify the whole process.At the moment I am totally confused by this medium, but I can see the advantages of running in virtual mode, but it just doesn't deliver. Well maybe it does for all those out there that live and breathe this technology but for the average punter this is all just too hard.
It was all hard for everyone when they first began. It gets easier with experience. Same is true for anything. Do you think Tiger Woods was always as good as he is now? But you don't have to "live and breath" the technology to be able to use it. Most people can drive a car well, but don't know how to fix them. Meaning, they don't "live and breath" automobile technology, but they don't find using a car "just too hard."
The "average user" for a car just drives it. They don't fix it, they don't do tune ups, or overhaul transmissions, replace mufflers, replace tires. (Not put on the spare, but actually replace the rubber.) So with a "average computer user", they just buy a PC with Windows preloaded. With virtualization, you're in effect "building" a new PC, the same as if you bought separate components and assembled them yourself. The is not something an "average computer user" does. You've become a techie, more specifically, you're doing things that a techie would do. And as such, you need to become familiar with the "tech speak." And not to sound harsh, but how do you do that? Practice and reading the manuals. For example, me personally, I had create something like 30 virtual machines before I felt comfortable with virtualization. While others would say they created much less, the reason I created so many is because during the creation of each virtual machine, I asked "I wonder what this does." And of couse, I would often get a "failure" in that the virtual machine didn't work the way I expected, or not at all. But I then RTM and tried to Google to learn what the thing was and when to use it, then try again. So practice and reading. 
I can't link to the specific manual for you, since you didn't mention what VMWare product you're using, but you can click on the support link at the top of the forums to take you to the product documentation.
So don't give up, but if you still think "it's just too hard", then maybe virtualization is just not your cup of tea.
... I tried everything but I couldn't get the install program to recognise the USB drive and yet the VM machine showed them as existing Drives on the toolbar at the bottom of the screen....
Again, you are NOT installing Vista to a USB drive. Vista CANNOT be installed to a USB drive. You create a new virtual hard drive. Vista sees this as a "normal" hard drive. That is what you're installing to.
Ignore the USB drive for the moment. For your "first" virtual machine, just create a new virtual machine on your C: drive, creating a new virtual hard disk as well. It doesn't have to be very big. Say 20GB for this test. Install Vista. If the install goes well, then you know that your system works and the steps necessary. Then you can create a new virtual machine, this time storing the whole virtual machine IN A FOLDER on the USB drive. If the second VM fails, then you know you have an issue with the USB drive or your USB ports.
However, if you have a problem with the first VM, then you have and issue with your installation media or some other problem with your system. At that point you then have a direction to point your troubleshooting.
As for the floppy thing, you don't need to create FLPs. You do need to unselect the "connected" checkbox in the virtual machine settings and click OK to "eject" the floppy. Then select the "connected" checkbox to "inject" the new floppy. You do the same if it was a FLP or a physical disk. Same also for physical CDs or ISO files.
And as for "easier", one thing I've been trying to change about myself is consciously being aware of thinking something you said: "I tried everything...." Now days, when I get stuck on something I "know" should work, I ask for help by starting with "Ok, it must be something I'm doing wrong. I need another pair of eyes to see where I messed up." Often it's discovered that one keeps doing the exact same (wrong) thing over and over assuming that that particular step is correct. (e.g.: "I used this install CD on that other computer so it must be good." Yes, but perhaps the CD drive on this computer is bad.) My coworker did this a few days ago when he assumed that the security rights for the shared folder were the same as the access rights to the files. He did the same (wrong) steps several times over the course of an hour until my boss saw the settings for the share. Not to be harsh, but my point is that you haven't done "everything" yet.
Glad to hear things are going better. 
One of the things that I would like to see is a wizard that automatically inspects your machine and then allocates a specific area of your hard drive for the first virtual Machine and then selects at least one usb Drive for the bulk of your VM installations.
To play Devil's advocate, if I didn't have a USB drive, but a eSATA drive or a Firewire drive? And what if I had more than one. which to select? Or just multiple internal SATA / SCSI / SAS hard drives. And then the system automatically selects the wrong one, yada, yada, yada. I can foresee that the wizard would have problems determining which HD to use.
Now my reason for this is very simple. I have three old machines that I use for different reasons. I would love to throw them out. I can see that using one USB drive with a tetraByte of Hard drive would allow me to run all the systems I want to from one Hard drive and 1 machine. I am really keen to experiment with Linux and other systems so from my point of view I hope that VM engineers realise just how many people out there in the IT world would like to see VM streamlined and simplified.
The Killer application that I would like to see is the one that install the entire VM installation just like when you install Windows. IE> you thrown in the dvd! Press setup! and Bingo there it is...... The only steps you need to do is when requested insert each OS disk into the CD-DVD ..... Reboot and there on your Desktop are shortcuts to DOS, WIN95, WIN 98, 2000, XP, Vista, win 7, LEOPARD, Linux and so on..... ad infitum.
That's not too difficult is it!
Well, I would submit that you're forgetting that you're also "building" the machine that you're installing Windows to. You're not buying a branded HP or Dell, that has the OS preloaded. (Otherwise VMWare has to license Windows from MS.) You're getting a "no-OS white-box", similar to if you bought a Systemax or something. And those systems even after you load the base OS, you have to install the device specific drivers. (i.e.: NIC & video.) In a VMWare virtual machine, you install VMWare Tools (which are the video card and other drivers) and other device drivers as necessary, just like any other white-box. So a virtual machine is not much different than any other white-box. Just a few more pieces of terminology to deal with. (e.g.: VMDK virtual disk file, rather than a physical hard drive.)
And as for the Windows install, aren't you saying in your last post that once you stopped specifying the USB drive directly in the Windows setup, that the installed worked? Realize that you would have had the same problem if you did the same thing on a physical PC. Installing Windows to directly to a USB drive not allowed. That's a MS limitation, not VMWare. So the blame for that is on MS, not VMWare.
Your "killer application" already exists. Using the "typical" option of virtual machine settings, assuming you've selected the appropriately correct OS from the wizard menu, the wizard will select the settings that a "typical" user will need. But even "typical" can't fit everyone so there is still some things you'll have to specify meaning the process will still require some knowledge. If one-size-fits-all actually was viable, then we would probably still be using DOS because there'd be no need for Windows. 😛