Whats the best WAY to transfer all files except OS files to external hard drive and once booted, use files and programs from external drive.Simply put you can't. If you do this and go to run a program Windows won't be able to find it because it has been moved. The registry will always point to the location that the program was originally installed to.

Instead what you can do is move all photos, videos and data files to an appropiate folder on the external.
There are other things as well...create a folder called Downloads for example and point your browser to use that for the default dload location.
I have 3 DLoads, Test and Zips...the downloads automatically go to the DLoad folder.
While i am testing new APPS which i do alot they are in the Test folder until it's decided whether they are keepers or not.
Keepers eventually wind up in Zips with my other archives which is burned to CD on a regular basis.

Basically it's all about GETTING organised so you're not spending time searching both drives to find something.

As music and photos can get quite large they are a natural for another drive to store to.

But as i stated earlier this is not a good idea for system files or programs...havoc will ensue.

Hope this helps.And, if you want to try "installing" programs on an external drive, here's a good reference: Can I install programs on an external drive?.  Note: The key is that, to work on an external drive, the program must be installed, not just copied, so that Windows knows where it is. 

The EXCEPTION would be portable apps, designed to run from an external hard drive or flash drive.  See www.portableapps.com, or www.u3.com for portable apps designed for U3 flash drives.