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I currently have COD4 and Crysis installed on my external USB drive and see no lagging or obvious loss of performance

Hi c-chavez, i'm not sure about using a USB drive as hengis does (crazy man ) but i personally wouldn't have my games installed on the same drive as Windows...that will decrease performance

Idealy, you want 1 drive for Windows and applications (office, anti-virus, etc) and another hard drive for games.

I myself have 6 drives. 1 for windows and apps, 1 for games, 1 for "downloads" 1 for media (tv shows/funny videos that i've amassed before youtube hit town) and 1 for my mp3s...there's also 1 there for my page file (but i'm crazy) and an external one that i use for transfering microsoft images around at work...

The reason that you'll get better performance out of having games off the main windows drive, is because of the "head unit" inside the hard drive. If it has to spin between the physical location of Windows and said game, it causes the hard drive to work harder, and whenever it is not on the game, it's running a bit slower...have a dedicated games drive, will ensure that you're head unit won't move until you've gotten to the next map, area, game, whatever

the short of it....is it's better