Installing windows 7 on external HDD

Hello

My HDD in laptop died. I currently have no money to replace it so I thought I would connect my 3.5'' HDD from my old PC. Now obviously it refuses to start. I see glimpse of Windows XP is loading then blue screen with some text flashes to fast to read.
I have come to conclusion that I would need to reinstall windows. The problem is Windows 7 is not supposed to be installed on USB drive. So I searched for a solution. I found this

How To Install Windows 7 On USB Flash Drive or External Hard Drive

It look like I would need a working Notebook to begin with. Can someone help me with this?
The things I have:
One Notebook with dead HDD and working DVD drive
Windows 7 install cd
One 3.5'' HDD from old PC (currently connected to Historical Artifact of a PC)
Lots of Flash drives
Friends Notebook without DVD drive

If I install windows 7 using the tutorial above trough friends notebook, would I be able to cennect it to mine and successfully boot? Is there a way to modify the tutorial to work during booting of CD on my Notebook? Any ideas?

See if you can install the external HDD internally, then you can Clean Reinstall - Factory OEM Windows 7.

Most externals are laptop HDD's. But you'd need to be sure it will fit, and not ruin the enclosure or USB adapter trying to remove it.

No. Already tried that. I guess I worded it poorly my ''external'' is 3.5'' HDD I pulled from my old PC. There is no way it will be fitting in the laptop. I bought a USB 2.0 to IDE & SATA kit. However I am still one piece short to connect it trough this kit internally. To buy the piece I am missing is pointless. First I run out of money, and second it would be cheaper to buy a new HDD that would fit (if I were to return USB 2.0 to IDE & SATA kit).
Basically I need to install Windows 7 trough USB.
The tutorial I referred to in my first post deals with that, but It requires working windows to begin with. I need something that would do similar job during booting of windows install disk. Or If someone can tell me how to install windows trough friends notebook without it becoming bond to it so I would still be able to boot from that HDD on my notebook.

Georc said:

Or If someone can tell me how to install windows trough friends notebook without it becoming bond to it so I would still be able to boot from that HDD on my notebook.

Are you saying you want to Clean Reinstall - Factory OEM Windows 7 on HD in another notebook and then move it to your laptop so that it boots and stays there?

If so then after install you can use SysPrep to move HD to another computer, or after install once you move it back to see if it will start on the other PC if it won't start (as is likely) then you can boot Paragon Adaptive Restore CD to P2P Adjust the Win7 to boot on different hardware. Then insert the Product Key from COA sticker.