I'm booting off of a 16 GB Trascend SDHC. Worked without any issue. Partition, format partitions, clone OS, booted up without an issue.

And the easiest way to ensure you're booting off of MMC instead of internal? Change your wallpaper. Shut down. Remove the SD card. Boot off of internal (you're only option). Voila, different wallpaper. :P

It should be noted that regardless of what you boot off of, your system volume will ALWAYS report itself as Internal Flash, even if you are booting off of MMC.