I'd go for internal myself, because its a much cleaner setup and you can keep game saves and game data on an internal one; whereas an external one can only be used for media. And swapping the internal HDD is simple.
Latest AnyDVD to rip > VOBB to blank the unwanted on a DVD > Shrink to compress > ImgBurn to burn = Never starting a thread asking how to backup a movie
Why would you need a bigger HD than supplied by the PS3? Do you save your game demos? I always delete after playing them, no point in keeping, I couldnt imagine using up all that space unless you are storing tons of videos/music/games which games cant be played so that would be stupid.
If you have a game like oblivion, Ryu Ga Gotoku Kenzan!, GTAIV etc, the games have either optional or mandatory installs of about 4gbs, so if you have more than 3 games you've got almost full HDD on a 20gb PS3.
