You can't just copy all the files on the drive to another and expect it to work. You need to use a specialized cloning program such as Norton Ghost to do that. There's still no guarantee it will work after that either. Microsoft has been steadily plodding away at making Windows less and less "portable" for the last 10 years, and will undoubtedly reach new heights with Vista in this regard. The same goes for most Windows programs.
Even if you manage to make a successful image, you won't be able to use your external drive to boot Windows, because Windows can't be booted from external devices. You'd have to crack open the case of the external drive and transfer the drive to the inside of your computer.
There simply is no good way to back up Windows. Most people eventually come to realize the best you can do is to back up your documents and other important files. There's nothing more you can really do with Windows. Any other operating system and you'd have a few more options, but not Windows.
I have a 250gb external seagate USB2 hard drive. I wish to back up my entire C drive to enable me to reboot in case of hard disk failure. When using XP Backup I identify the drive and it starts then a message appears 'unable to make recovery disk' and aborts the operation. Initially the drive was not recognised in backup but by using advanced mode it now is. It has always been visible in Windows explorer and I can transfer data manually. Any ideas?