It is OK IMHO. I have some games on an external drive, but I would recommend transfering other things that you don't use much. All of my commonly played games are on the internal HD.
Games load slower due to the slower disk speed through USB/firewire, but once loaded, they seem to do fine. Games that access the disk constantly might suffer a bit, but I doubt it would be that bad.
Firewire > USB2 if you ask me. I would go with a solution that uses that. SATA via express slot might be the best, but I cannot test that.