crankyerma, the fact that your external drive works with the usb1.0 port that came with the laptop makes me think that your problem is almost definitely with the driver of your usb2.0 PCMCIA cardbus adapter.
Check the driver by going to control panel, then system, then hardware, then device manager, then right click on the usb2.0 controller device and select properties from the drop down manual, then select driver, after which you will see the information related to the device driver employed by xp for the particular device displayed.
If you feel uncomfortable doing this yourself, I am sure some friends who knows the way around windows xp a bit could help. even if you get another external drive, you still need a usb2.0 port to hook it up. maybe you can get the shop you buy the drive and contoller card from to demonstrate everything is working first before accepting the goods, I don't know.
I still think your best bet is to get help from a friend to check/fix-up the driver problem.