The nice thing about an external drive is that you're not just backing up your data. You can back up the entire contents of your hard drive: OS, software, preferences, the whole bit. (I use SuperDuper but there are other options.) If anything happens you get another laptop, boot from the external drive, and you've given the new system a "brain transplant" from your old one. If you have a temporary replacement, keep running from the external disk; if it's permanent, copy it onto the internal drive.

That saved my bacon when an FA spilled milk onto my PB in flight a few months back. I was out of business for the duration of the trip (fortunately OK that time) but as soon as I got home I borrowed a friend's spare iBook, plugged in the external drive with the backup from the day before the trip, and was 100 percent back in business immediately. I repeated the process when the replacement PB showed up. (Yes, the airline paid for it.)

(This won't cross PowerPC-Intel platforms, but it works within one family.)