Good idea to have external, removable backup. I'm using D-link DNS-323, with two 1 TB drives. I'm not sure I would recommend you go that route. Understand 1 TB drives are now using 4k sectors, not native to any existing system. There are problems with these drives, I know only too well. Consider 500 gig drives, they are all 512 bytes per sector. If you want to know more, do a littel googling. WD's 1 TB drives are 4k per sector.
Now, as far as the install, clean is the way to go. You do not have to format /home or any other partitions with user data. You only need to format / ( root ). In theory, all your stuff will still be there after the install. This assumes /home is not on the same partition as /. If it is, then that is the point you need to separate /home from /.
There are lots of USB enclosures out there with drives in them. Most are formatted as NTFS. You might want to do some googling on external drives. Not sure I would do that with a linux system.
My d-link runs linux, so both drives are ext3. The d-link also runs a samba server, so backups from any other system; Windoze or a Mac works just fine. Not the fastest, but it works.
I would be happier if I had known about the 4k sector size issue, and bought smaller drives.
The d-link is a nice toy, very hackable. There is a site dedicated to hacking d-link sans. Lots of fun....