The main issue I've found with external USB drives is heat. Most of the cases have really bad cooling, and if you leave them on too long they'll get far too hot and end up dying (heat seems to be the #1 reason for early HDD death, aside from dropping them of course)
With that said I've had pretty good luck with the new Samsung 'EcoGreen' drives in external cases recently, they spin slower than regular drives (5400RPM vs 7200) , which also means they run cooler and thus I feel more confident in them not overheating. For mass storage of things reliability is obviously more important than performance.
USB isn't the fastest, but for most things it's sufficient. I can run the Laserdisc CHD games over USB without issue, and as far as streaming performance is concerned those are the most demanding things in MAME (and probably more demanding than your average HD video anyway) If you don't have USB2 support then you really need an additional card tho, be it ESATA or USB. USB1.0 / 1.1 are SLOW, and you'll get bored even just trying to transfer stuff to the drive.
Recent Seagate drives are terrible, they seem to be the worst of the bunch for overheating, so I'd avoid them at all costs. Older Maxtor drives were similar (and Seagate's quality nosedived as soon as they bought Maxtor and started using their fabs) As another poster here has said, the 1.5Tb Seagates are shocking, even with adequate cooling they're highly unreliable, I gave up even bothering to RMA the ones I had because the replacements would barely last 2 months.