The user DaBruGo on Ubuntuforums have managed to successfully load Ubuntu a number of times on his/her external USB drive.
See here how it was done
BACKGROUND: I have an internal hard drive (western digital) already in my system with Windows XP Pro installed (which shows up initially as drive HDA in the UBUNTU partitioning phase of the install). My external USB drive is a Seagate 40GB Portable External Hard Drive that was purchased at Walmart for around $120
REQUIREMENTS: Make sure you have your bios set to boot the CDROM first and then the USB device, or you will have problems down in step 4. (Kudos to “joess” for pointing out my omission!)
pre-install tip: If you feel comfortable performing one of the suggestions in post #141 then it should make the installation to the external drive (especially tip 2) run smoother. (Kudos to “Sephatine” for suggesting this.)