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#850
Hello Quoll, and welcome to Seven Forums.
The external HDD would have to be connected to the computer using an e-SATA connection without any adapter so that Windows 7 will think that the externall HDD is the same as an internal HDD. It will not work with any other type of connection.
If you do have that type of connection, then you can just follow METHOD TWO in the tutorial to install and dual boot with XP.
Hope this helps,
Shawn