Apparently it's tricky to install Windows on a USB Hard Drive
Here is an article from 2008 on it
But you can get around that by using an image.
I'd add, that you can use Macrium Reflect, to create and restore images, it is freeware,
Hello there. I have a simple solution for you if you are familiar with backup & recovery by acronis true image. Then step as bellow:
1. Install windows XP to your internal HDD
2. Make backup your windows XP by acronis true image
3. Create 1 primary partition in your external HDD
4. Recovery windows xp backup file which is already created in step 2 to primary partition in your external HDD.
5. Restart your laptop and press F12 key to get in menu boot select . Then select boot from external HDD
There may be a newer method , using diskpart and a VHD, which is mentioned at your link
You can format it as FAT32, and you can always convert it to NTFS later. (I did that with XP).
Windows 7 has a convert command to do that (XP had too apparently)