As long as you’ve got enough bandwidth, you’re OK. The only digital to analouge conversions are done @ the sound card, and the little audio plug on the back of the drive. As long as the drive supports it, you can just use digital audio out from the drive, and the soundcard does the actual conversion. This usually yields the best sound, because the stupid little cables pick up a LOT of noise. The sound card usually has a better audio processor on it too, unless you’ve got something JUNKY.
As for the ripping process, as long as you don’t get any errors in the data stream, you’re OK with the external drives. It’s 100% digital, never makes it to an analouge format. I dunno what format you rip in, but unless you’re using >256 kbps, you lose more with an MP3 than you do through drive errors anyways. The only thing that would cause real problems is if the drive was a crappy reader, then you’d get errors and glitches in your sound. So, as long as the drive is a good ripper, you’re set for that. There’s no data loss over a USB or firewire cable.
Now burning is another story, you’ve got to keep good data flow, or you’ll get errors on your disks. As long as you get the right chipset, you’ll be able to burn just fine @ 12-16x on your DVDs and 32-48x on cds. Even then, the buffer under run protection stops it from making big errors, but burn quality will suffer if you get a junky external drive. I think most of the pre-assembled external drives are OK, some of the cheapo ones might give you trouble. All of the external drives are just an IDE drive in an external enclosure, whether you buy them assembled or not is your deal. I’d personally suggest going for an internal IDE drive, it’s guaranteed to work. Forget about a USB 1.1 burner, it will be slow as heck!!! Only use USB if it’s USB 2.0. So, it’s up to you, but if you’ve got a spot for another IDE drive, just put it inside. It will be cheaper, work better, and live longer. If you have a real need for a portable CD/DVD drive, then choose carefully.