Location is fine
External drives are usually based on an internal model, so there is normally no difference (apart from production variance) between an internal drive and its external sibling.
Don't know what to buy.
For audio CD application: Avoit Liteon and their clones. My personal (mature IDE hardware) favourites are Pioneer 112 (later Pioneers up to 115/116 should be okay also), Optiarc AD7200A, LG GSA 4163 (4167 is okay also).
I'm using Win98se on a separate computer that never goes online. Music get imported or recorded.
Then no external drive due to the lack of USB mass storage drivers. Also, it is not clear if your system supports USB 2.0 Hi Speed. This is mandatory.