TG,
You'll still need an internal HDD to have the OS (Windows XP) installed on, even if you plan on having everything stored on the external one. Get a good quality but small drive just for this purpose. Also, you need to find out what type of HDD your computer has i.e. IDE or SATA? A good website that I have used many times in the past to purchase computer components from is
Ebuyer
Hope this helps!