Another consideration with a Live USB drive is that you need at least a 2 gigabyte flashdrive if you want a persistent test drive. While a CD or DVD is only a couple of dollars, you might think twice about spending $40 to let someone experience GNU/Linux on a flash drive.
The most recent choice for exploring GNU/Linux from Windows is Wubi. The program is designed to install Ubuntu -- its name is short for "Windows Ubuntu Installer" -- but similar tools for other applications are likely to appear soon.
Wubi installs a version of Ubuntu to the partition on which you have installed Windows, and adds a bootloader to give you the option to run Windows or Ubuntu when you start the machine. When I reviewed Wubi back in April, the installer assumed that users would have reasonably advanced computer knowledge, but the performance of Ubuntu was slowed only by the fact that Windows file systems tend to be slower than GNU/Linux ones. It also uninstalled cleanly when I was finished, leaving very little to ask for.
Each of these test drive methods has pros and cons. Which you choose depends on the effort you want to spend in introducing GNU/Linux, what you want to highlight, and the interest shown by your audience.
For those who want a minimum of fuss, a Live CD is hard to beat. It does not affect what is already on the machine, and is a cheap way to satisfy curiosity quickly. If the slow speed of a Live CD bothers you, then a Live USB drive will give you a better sense of GNU/Linux's performance, but at a higher cost if you don't happen to have a spare flashdrive handy. Performance is better indicated by emulation or virtualization, but setting up any of those choices requires more time and effort than curiosity might warrant.
The best all-round method for test driving is probably Wubi, because its straightforward and offers good performance without requiring any extraordinary resources on the test machine. Some Windows users, though, might be made uneasy by its use of a boot drive, and lay users might find the installer assumes knowledge that they lack.
However, for those who are more than idly curious, dual booting remains the best choice for test-driving, especially when you set up a data partition that both operating systems can use. On a dual-boot system, you can see the full power of GNU/Linux, but still use Windows if you feel the necessity. The only reason you might hesitate is if you lack hard drive space.
The best choice, of course, is probably to install GNU/Linux on a spare machine, which is even easier than dual-booting and removes any fears about loss of data. However, if the Windows users around aren't ready for that effort or commitment, any of these methods can be a reasonable alternative, depending on the circumstances.