I have heard that "Mandrake" is able to recognise USB disks on installation, but I have
not tried myself. RedHat Fedora doer not however :-(
Otherwise, the big problem is that the mounting of root "/" must be delayed.
I am using an initial ram-disk (initrd) instead of patching the kernel as in this HOWTO.
I run Gentoo on an external USB disk, so it can be done. It is however a bit tricky so
if you are a newbie it can be very hard. If possible try to install on a small (e.g 4GB)
partition on a normal HD and then mount the USB disk later and store bulk data on it.
This would be simpler.