Generating a Debian Live CD is very simple. You need to have live-helper (package available in Debian sid and lenny), and Debootstrap (or cdebootstrap) from etch or newer.
1. Install live-helper
Install live-helper.
apt-get install live-helper
2. Configure the current working directory with lh_config
lh_config -b iso -a $ARCH
where $ARCH is the intended architecture (i.e. - i386 or amd64).
-b flag is used to be sure to obtain image in ISO format.
2. Build the image with lh_build
Execute lh_build as root:
lh_build
The command above will create the basic image, containing just the Debian standard system (with no X at all).
If you want to have any of the Desktop_environments on your livecd, ls /usr/share/live-helper/lists will show a number of available package Lists to choose from, e.g. lh_config -p gnome-desktop.
More examples are listed at DebianLive/Examples.
See DebianLive/Configuration for help configuring a local Debian Mirror and other aspects of the live system.
3. Test the image
If you have qemu installed, you can boot the image with:
qemu -cdrom binary.iso
If you have also kqemu installed, you can add -kernel-kqemu.