I would use an internal hard drive unless you plan to take that drive away from that computer and connect it to another computer, then I would go with an external hard drive. The file access is a lot faster on an internal hard drive than it is on a firewire or USB2 External HD. What I would do is get both, I would use the external hard drive for backup purposes.
Also as a little note. If you intend on buying a HD and enclosure (which gives more bang for the buck) I suggest you buy an enclosure that is 3.5 inch and has a fan built in. The 5 inch enclosures are too bulky and the 2.5 are only made to hold notebook hd's.
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