GIven all the hassles of an external drive, speed included. I would just upgrade the internal drive. (I speak from experience on this issue) I think Hitachi has 2.5" drives up to 80GB with very fast access times. You may be able to go to a higher UDMA rate that will help the speed of your burns as well. I believe they have a 3 year guarantee and some software that monitors the drive for potential failures. If you travel much, you will appreciate loading movies on the internal drive for later viewing as well. Especially so given the ever decreasing size of airplane tray tables (and the expanding waste line of old age!).
You may be OK running Turbo Tax (TT) from the External Drive, but last year TT has some weird copy protection S/W that essentially prevented it from runing in certain configurations or at a later point in time and /or a reinstall prevented it from running at all. Not sure if this is still the case, but I am sure you would want to be able to look at your TT income tax filing again in the future. Given this, I would load TT on the internal drive.