When you install a program, you can choose "Custom" and then choose the file path. You'll need to know the drive letter of the external drive, then you can do whatever you want.
For example, if the external drive is E, and you are installing MW2, you could install it to "E:\Games\Modern Warfare 2" or something like that.
The big downside to this is that if you install something to an external drive and unplug it, your stuff won't work and you'll have a bunch of shortcuts pointing to stuff that doesn't exist. If you always leave the drive plugged in and don't plan on moving it, then you should be ok. Also the drive letter can potentially change if you unplug it and plug it back in, thought that's less likely.
Edit: No problem, hope that info helps.