"Can an external USB hard drive work as a hard drive?"
Yes, but more than likely you won't be able to boot from it. You can use it as a data hard drive.
"Can I load a game onto the external drive and run it from the external drive?"
"How hard is it to change a hard drive in a M5500?"
Easy. Power off and unplug the laptop. Remove the battery. On the m5550 you unscrew 2 screws at the bottom of the laptop, remove the cover, and remove one more screw that holds the hard drive to the laptop. Remove the drive and 4 screws that hold the caddy to the hard drive. Reverse this process to install the new drive. I would think the process on the 5500 would be similar, if not identical.
"How would you get your old information and games onto the new drive. Would I have to reinstall the games?"
Depends on how you back up your system before putting the new drive in. I'm assuming that you're going to be replacing the internal drive with a larger one. In that case you could use Acronis True Image (or something similar) to make a full backup of the hard drive. You could burn the backup to DVD's but it would take quite a few of them. I usually backup my system to an external hard drive. It's MUCH faster and easier, but it costs more $$$ for the extra drive.
Also, you could install the new internal drive, use your respawn CD's or DVD and then reinstall your games, etc. after that.
With Acronis True Image you'll get everything back and won't need to reinstall anything.
Assuming the 5500 uses a SATA drive you can find them fairly cheap these days. You can get a 250GB internal drive for $189.99 right here:http://www.newegg.com/Store/SubCateg...op-Hard-Drives
Smaller drives cost even less. Anyway, hope this helps.