Yes, it is possible to boot windows directly off of an external usb hard drive, despite what almost everyone will tell you. In fact, I myself have done so, and I have found no problems with windows at all.
If you want to run windows off of an external hard drive, visit this website. There is a list of computers that this process has worked on at the bottom of this page (along with mine, mac mini intel).
The process involves copying the disc of an already purchased (and valid) copy of windows xp (service pack 1 or 2). You then modify some files to accept usb drives as bootable drives. Once modifications are done, you make a disc from the copied disc image, and install windows on your ex HD. I suggest following the instructions as closely as possible, in order for the process to work, unless you have a spare computer to fool around with (which I did), and a LOT of patience.
Now, technically my windows does not run solely off of the external HD. I still have a small partition, about 0.8 GB, on my internal HD which tells my mac mini upon startup that there is an OS on the usb drive. However, the usb drive is the default drive for all windows program installations, and is where all system files are stored.
Some helpful pointers if you wish to follow the above website’s procedures, you will, in the end, need a partition on your main drive that can store about 0.779 MB of files (make it about 0.8 GB). Windows needs this for installation, and for startup, as mentioned before. Also, as stated in the procedures, you need a computer that has a working copy of windows on it (like a friend’s computer, laptop, etc.).
A note: your warranty will be void if you do the modifications neccessary to install windows on your usb drive.