i'm not sure, but i think that it should be possible, if it were me then i would put in the lice CD and start the installation, with the external HDD connected, and see if that shows up in the partition editor, then choose to install the OS on that HDD. when all is done and over with you will most likely have to go into the computer BIOS and enable "boot from usb" if it is already not enabled, then you can change to boot order to automatically boot from there. or every time find a way to choose the HDD. when the BIOS is loading, there should be an option to show a boot list, it will be F_ something (ex mine is F12) i think this should work, but never done it so cant say for sure.
"time is momentary" - ME
Dell E510, 4 GB DDR2 PC5300 RAM, 1147 GB HDD , Intel Celeron D 2.8 GHz CPU, ATI HD 2600XT 512 MB. LM 4.0, and Win XP Media Center Edition 2005