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I have a comment to add on this -- one of our computers is an older iMac G3 500Mhz with a 20-Gig internal drive. Because the internal drive was so small, I had to move all the photos and music files (used in iPhoto and iTunes) to an external firewire drive. I did this last year and did exactly what Dave describes, which is partition the external drive so that the photo and music files are on one separate partition, and the other partitions are used for SuperDuper clones of the internal HD (which no longer had music and photo files). There is a straightforward way to tell iTunes and iPhoto that you have moved your music and photo libraries/files over to this new location.
The only problem with this is that now the music and photo files are sitting unbacked up on that external drive. So I got an second external firewire drive (they are pretty cheap) and use it to backup all those music and photo files, plus there's plenty of extra scratch space as well for games, videos whatever.
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