Can you create virtual PC on an external drive? Yes, You will be able to run Virtual PC on external HARD drive. You can follow the below article that will give you information on ‘WINDOWS Virtual PC and Windows XP Mode’:

HTTP://technet.microsoft.com/en-us/library/ee681737(WS.10).aspx

You can also refer the below link that will give you information on ‘Download Windows XP Mode’:

http://www.microsoft.com/windows/virtual-pc/download.aspx

You can also check out the below link for more information on Virtual PC.

http://www.microsoft.com/windows/virtual-pc/

Important Note: After installing Virtual PC on an external hard disk, to use Windows XP from within Virtual PC, the external hard disk has to be connected to the same computer. First you've to launch Virtual PC from the Start menu and then launch Windows XP. Launching Virtual PC by CONNECTING the external hard disk to a different computer will not work.

Hope this helps. As 2x3i5x said: yes, you can do it.

I wouldn't recommend it, though, as it'll be slow unless your external drive is eSATA or USB 3.0. USB 2.0 just doesn't cut it...VMWare workstation has built-in support for placing a entire VM and it's contents on an external drive. Won't even require the host to have vmware installed.