Yeah, for the most part. The odd game won't let you do it, but those are mostly older titles.
As far as i know you need a harddrive for most things but some things(some savegames like COI says) wont back up no matter the medium.
I think ps1/ps2 save games require that old school savegame stick with an adaptor ?
But if you have 120gb to back up you will need at least 120gb drive to back it up to....
If you have an old drive laying about from an old pc you can buy a usb box for that and use. Drive must be formatted as fat32 which windows wont let you do above 40gb i think so you need a 3rd party program for that but there are free ones out there for that. example that takes both 2.5" and 3.5"
The usb stick is just for the firmware, and if you watched that last video i linked to you know the directory structure you need to make, and make sure it IN UPPERCASE (or it wont work and give you a headache like it did me )