No need to clone - everything looks like it should. I'm guessing your machine can't boot from an external device - this is a BIOS limitation.
Grub is in the MBR of the internal disk, but can't actually boot (beyond that) because the BIOS can't supply a path to the external at boot time.
Two choices I reckon;
- make some room on the internal disk for grub.
- make the external "self contained", and restore the Windoze loader to the (internal) MBR, and load Ubuntu from that.
First is probably best, but could get messy if your BIOS is old - grub may have to be located within the first 1024 cylinders.
Second means you can remove the external and still boot windows.
For you, I'd probably recommend the second - this is why I asked you to insert the USB stick before running those commands. I'd do it this way
dd if=/dev/sdb1 of=/dev/sdc1/linux.bin count=1
This installs grub to the root partition of your external, and copies the first sector to your USB stick. All in preparation for what follows.
Reboot your Windoze install CD, and hit <r> to get into Recovery console when it says so. From there run "fixmbr" (no quotes). Reboot, and you should get a normal Windoze boot sequence.
Now you need to add a Ubuntu option to your Windoze boot menu - copy the linux.bin file from your USB stick to your C:\ partition, then edit c:\boot.ini and add a line like this at the bottom
c:\linux.bin="Ubuntu (external drive)"
was typing this when pix answered. Think of it as another possible option.