I have done same thing on my laptop, and it works.
- Boot up from DVD
- Click install.sh
- When asked where to install, do not select SDA (or any other variant of your primary HD). Your external should show up as SDB. Create partition as full hard drive or only partial, your choice.
- If you want to install GRUB, install it on SDB (not SDB1 or HD0 or HDA or any variant of your primary HD)
- After installation is complete, reboot, go to your BIOS and change device boot priority. I have CD/DVD as 1st, USB as 2nd, internal HD as 3rd.
Now, it you want to boot from external hd (BT4 that you just installed), plug in your HD and reboot. It should boot into BT. If you want to go into Windows, power off (if you are in BT), remove your external HD and boot-up normally straight into Windows.
I used 2.5 IDE HD, 250GB, and it works just fine. I even mounted on the back of my laptop dislay. That way it's always secure in it's place, and not moving around on my desk. One draw-back with my set-up, is that 2.5 inch HD is using 2 of my USB ports, and it only leaves me with one available USB port (I got 3 total).