I followed the instructions here, but
format fs=fat32 quick
did not work, it gave the following error:
Virtual Disk Service error:
The volume size is too big.
So I then tried just format quick which worked.
Now, will I be able to install Windows 7 properly if I copy the root contents of the Windows 7 install disc to this external drive and then boot off of it?
There is a fairly easy way to install Windows 7 from an external hard drive, and it takes less then 10 minutes to set up. You also don't need to switch to FAT32 to use this method.
First, format your disk as NTFS (quick format is fine, default sector size). Then, extract your Windows 7 disc/ISO to the hard drive. There is a utility included on the Windows 7 disc which allows you to mark the drive as bootable, located in the boot folder.
Once you're there, run BOOTSECT /NT60 X:, where X: is the letter of the external hard drive. Once that's done, you can just plug the drive into your computer, and you should be able to boot from it. Just FYI, the BOOTSECT tool updates the MBR for that drive's partition.
Alternatively, you could also just run the following command (from a command prompt or from the Run dialog, WinKey + R):
X:\boot\BOOTSECT /NT60 X:
Where, again, X: is the drive letter of your external hard drive. Once this is done, the hard drive has been marked as bootable, and if you try to boot your computer from it, the Windows 7 installation will be launched.
The reason they use FAT32 in that Technet article you posted is because those instructions were for a USB key. You can follow the DISKPART part of that guide to get your partitions prepared and setup, but do ensure that you format the drive using NTFS.
I'd check to make sure that the fs on the USB HDD is fat32. If it is, than you should have no problem continueing. If it isn't though, I'd suggest re-partitioning it into a smaller chunk and only using that bit (make sure it's boot flag is set).
I found how to boot Windows 7 on an external hard drive by using a program called PWBoot.
All you have to do is install Windows Vista or Windows 7 by connecting the drive on ata or ide. Then, after the installation is over, you boot into Windows and install the program PWBoot. From that moment on, your hard drive will be able to boot from a USB.
I think you may be running into a problem that dates back for 20 years: Having a FAT32 boot partition larger than 4GB. I can't say for Windows 7 since I don't use FAT32 any more, but it never worked up through Windows NT and Windows 2000.
They broke that limit with Windows 2000, however the setup program still was bound by it.
http://support.microsoft.com/kb/138364
Those instructions look to me like they chose to format it as FAT32 due to the fact that many flash drives only work with FAT32. If you chose NTFS, my guess is that it should work for you.
The problem you are having is that you cannot create a FAT32 drive larger than 32 GB within Windows. Windows versions since XP no longer support the creation of FAT32 partitions that are larger than 32GB. See this question which gives a couple of options on creating the partition and the Microsoft site which details the issue.
You either need to get a USB memory stick that is less than 32GB, repartition the external hard drive so that the first partition is less than 32GB or use some other tool to create the FAT32 partition (a Linux LiveCD or something).
The format quick option is likely formatting the drive as NTFS, see Breakthroughs answer for how to install using NTFS.
