Check this site out on how to install Windows on an external hard drive.

http://ftanada.wordpress.com/2009/02...ckflash-drive/

Basically VMWare makes the Windows installer think it is installing on an internal drive. This must be done on an Windows XP with VMWare installed.

Every time new drivers are installed (moving to another computer), you need to boot it up once in VMWare then boot from the external. Then chkdsk will run on boot up and all subsequent boot ups will work.