Rivets,
Could he use his external hard-drive as a temporary main/primary drive while he reformats the original?
If the PC BIOS supports booting from a USB device
AND the USB external disk is bootable, then yes. It is no different to booting from a USB flash memory stick.
The problem almost certainly is that his external disk is not bootable.
As others have stated, you can use some form of bootable device (USB or CD) to fire up the PC without touching the existing disk, attach the external disk and attempt to back up data.
Recovering data should be the first priority, but having achieved this (hopefully) it is then well worth running repairs using the HDD manufacturer's tools (download from their website), and / or from the MS setup disk.
If successful, one should then clone the existing disk using Ghost / Altiris etc. to a new hard disk, rather than re-use the old one, which will probably fail again. Even if some system files got corrupted, it is possible to overcome most file corruptions by doing a windows install\repair and one then has the old system working on a new hard disk, so no need to go through the process of re-installing all applications and settings.
This is definitely the process I would adopt (recovered one of my systems in just such a fashion recently).
MJ -
Reformat the internal drive but make sure its FAT16 or 32
Neither the reformat nor the FAT requirement are necessary - in fact I struggle to think of a reason for either. Much better to use the OS installation procedure to re-partition the disk (if required) and format as required.
shut down and disconnect usb and external and set the bios to boot primary drive then DVD/CD then boot with setup disk in the CD/DVD. Use the setup to change the file system to your particular favorite
I would recommend to set the BIOS boot sequence to Removable>CD>HDD.
SD