Is there a market for this?
May be but I’d doubt it to be huge. I believe what you seem to be doing can easily be done using unetbootin.sourceforge.net or pendrivelinux.com
So, why would anyone with access to Internet want to buy from you? This could be useful to someone who does not not how to download OS or create a live CD/USB.
Is this legal?
As long as you are attributing the source and to its authors/creators, it is absolutely legal to package and re-distribute open source software and sell it to people who might otherwise not be able to download it. So yes, it is legal to make money from open source. You just need to follow the rules.
In fact, the Free Software Foundation encourages the “distributors” to charge as much as they wish or can – see below or refer to http://www.gnu.org/philosophy/selling.html & http://www.gnu.org/philosophy/selling-exceptions.html
“Selling Free Software
Some views on the ideas of selling exceptions to free software licenses, such as the GNU GPL are also available.
Many people believe that the spirit of the GNU Project is that you should not charge money for distributing copies of software, or that you should charge as little as possible—just enough to cover the cost. This is a misunderstanding.
Actually, we encourage people who redistribute free software to charge as much as they wish or can. If this seems surprising to you, please read on.
The word “free” has two legitimate general meanings; it can refer either to freedom or to price. When we speak of “free software”, we’re talking about freedom, not price. (Think of “free speech”, not “free beer”.) Specifically, it means that a user is free to run the program, change the program, and redistribute the program with or without changes.
Free programs are sometimes distributed gratis, and sometimes for a substantial price. Often the same program is available in both ways from different places. The program is free regardless of the price, because users have freedom in using it.
Nonfree programs are usually sold for a high price, but sometimes a store will give you a copy at no charge. That doesn’t make it free software, though. Price or no price, the program is nonfree because users don’t have freedom.
Since free software is not a matter of price, a low price doesn’t make the software free, or even closer to free. So if you are redistributing copies of free software, you might as well charge a substantial fee and make some money. Redistributing free software is a good and legitimate activity; if you do it, you might as well make a profit from it.
Free software is a community project, and everyone who depends on it ought to look for ways to contribute to building the community. For a distributor, the way to do this is to give a part of the profit to free software development projects or to the Free Software Foundation. This way you can advance the world of free software.
Distributing free software is an opportunity to raise funds for development. Don’t waste it!
In order to contribute funds, you need to have some extra. If you charge too low a fee, you won’t have anything to spare to support development.
Will a higher distribution price hurt some users?
People sometimes worry that a high distribution fee will put free software out of range for users who don’t have a lot of money. With proprietary software, a high price does exactly that—but free software is different.
The difference is that free software naturally tends to spread around, and there are many ways to get it.
Software hoarders try their damnedest to stop you from running a proprietary program without paying the standard price. If this price is high, that does make it hard for some users to use the program.
With free software, users don’t have to pay the distribution fee in order to use the software. They can copy the program from a friend who has a copy, or with the help of a friend who has network access. Or several users can join together, split the price of one CD-ROM, then each in turn can install the software. A high CD-ROM price is not a major obstacle when the software is free.
Will a higher distribution price discourage use of free software?
Another common concern is for the popularity of free software. People think that a high price for distribution would reduce the number of users, or that a low price is likely to encourage users.
This is true for proprietary software—but free software is different. With so many ways to get copies, the price of distribution service has less effect on popularity.
In the long run, how many people use free software is determined mainly by how much free software can do, and how easy it is to use. Many users do not make freedom their priority; they may continue to use proprietary software if free software can’t do all the jobs they want done. Thus, if we want to increase the number of users in the long run, we should above all develop more free software.
The most direct way to do this is by writing needed free software or manuals yourself. But if you do distribution rather than writing, the best way you can help is by raising funds for others to write them.
The term “selling software” can be confusing too
Strictly speaking, “selling” means trading goods for money. Selling a copy of a free program is legitimate, and we encourage it.
However, when people think of “selling software”, they usually imagine doing it the way most companies do it: making the software proprietary rather than free.
So unless you’re going to draw distinctions carefully, the way this article does, we suggest it is better to avoid using the term “selling software” and choose some other wording instead. For example, you could say “distributing free software for a fee”—that is unambiguous.
High or low fees, and the GNU GPL
Except for one special situation, the GNU General Public License (GNU GPL) has no requirements about how much you can charge for distributing a copy of free software. You can charge nothing, a penny, a dollar, or a billion dollars. It’s up to you, and the marketplace, so don’t complain to us if nobody wants to pay a billion dollars for a copy.
The one exception is in the case where binaries are distributed without the corresponding complete source code. Those who do this are required by the GNU GPL to provide source code on subsequent request. Without a limit on the fee for the source code, they would be able set a fee too large for anyone to pay—such as a billion dollars—and thus pretend to release source code while in truth concealing it. So in this case we have to limit the fee for source in order to ensure the user’s freedom. In ordinary situations, however, there is no such justification for limiting distribution fees, so we do not limit them.
Sometimes companies whose activities cross the line stated in the GNU GPL plead for permission, saying that they “won’t charge money for the GNU software” or such like. That won’t get them anywhere with us. Free software is about freedom, and enforcing the GPL is defending freedom. When we defend users’ freedom, we are not distracted by side issues such as how much of a distribution fee is charged. Freedom is the issue, the whole issue, and the only issue.”
I’m not a legal expert dealing with Intellectual Property, so please do not consider this as expert advice. Consult a legal IP expert if you need to.