Either solution can work. Windows Steady State is a bit of a bear to set up, but once you have it running you will be very happy :)
If you use Linux, you don't have to make users use a Live CD. Users by default can't install software, at all. So... giving everyone their own username would work. In a lab situation, you could use Ubuntu server and have 1 place to manage the users in an LDAP system. However, if you're not experienced in Linux, go with Windows Steady State.