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I use a 500 GB external FW drive, partitioned in equal halves - one for a complete mirror of my internal drive, the other for "stuff". It works well. And like Dave says, a complete mirror (users, system, apps) is far more convenient when you need to restore, even if you just need to pull out some random OS file b/c something in the system becomes corrupt.
How do you know it's bootable? Try it. Do a complete mirror, go to system preferences and choose the external drive as the start up disk. You'll re-boot to that disk and you internal HD appears to the OS as a secondary drive. Very cool.
Remember, SD still isn't Leopard ready though.
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