|The max data transfer rate of the USB 2.0 interface is 480Mbps (60MB/sec). And that assumes 100% efficiency, along with no other devices sharing the interface.|
By comparison, an IDE HDD has a max transfer rate of either 100MB/sec or 133MB/sec, depending on your system. Or if it supports SATA drives, the max rate is either 150MB/sec or 300MB/sec. All of these numbers are theoretical though...actual transfer rates will slower.
What I'm getting at is, any OS run from an external drive will perform much slower than if it was run from an internal drive. For best performance, you'd be better off reformatting/repartitioning the 500GB HDD & installing XP on the 1st partition & Win7 on the 2nd partition. The 80GB HDD could then be used externally for storage or backups.