I am going to be using eSATA connection. What r the advantages and disadvantages of doing this?
Not many issues these days. But... (and this may be a big but, depending on your current XP disk)
Make sure you install from a SP2 or higher XP installation disk. XP has no native support for eSATA and you will need the drivers from the manufacturer and place them in a floppy disk (or USB drive if your system supports it).
When starting installation from the CD, press F6 when asked to so that you install these additional drivers.
With a bare bones (pre SP2) windows disk I'm thinking the installer will not recognize USB drives even if your system supports them. You won't be able to install the eSATA drivers from an USB stick. Only from a floppy disk. But even if that is not the case, not until SP2 did Microsoft implement good eSATA support. So this should be your initial Service Pack no matter what.
If your system doesn't have a floppy drive, you can't use USB drives for some reason, and you only have a bare bones XP disk, you can still do it by using nLite to create a new XP installation disk with your drivers already included (and preferably, why not?, SP3 already slipstreamed).