As long as you have USB2 (not 1.1, which is far too slow) and your system supports booting from USB devices, this is what “I” would do…
Install Win7 to the internal 80gb drive
once Win7 is installed and working… shut down… unplug the internal drive, leaving ONLY the USB drive connected.
boot from a Linux LiveCD and resize the current partition on the USB drive, leaving some unpartitioned space for Linux.
reboot to the Linux LiveCD and tell the installer to install to the free space.
when Linux is installed and running…
reconnect the internal drive, and use the BIOS or boot device selection screen to choose which drive/OS to boot… or set the hard drive boot order in the BIOS to boot the USB dive first, then if you have the USB drive plugged in when you boot, it will boot Linux, if the USB drive ISN’t attached at boot, it will boot into Windows… once booted into Windows you can always attach the USB drive to use it as storage.
The reason I’d do it like this is…
you will have a bootloader on both drives which means if anything ever goes wrong, you will be sure of having at least one working OS… it will also allow you to connect the external drive to ANY PC that can boot from USB and Linux will be bootable on that PC too (unlike windows, the drivers will automatically be configured for the new PC).
The reason I don’t say format the whole 1tb drive for Linux is… Linux will be able to see ALL partitions on both drives, but Windows will NOT be able to “see” the Linux partitions… so you want most of the 1tb drive partitioned as a Windows file system (NTFS/FAT32), then it will be available to both OS’s.
If on the other hand you decide to ignore this, and install both to one drive, or not choose the OS to boot from the BIOS (by having just one bootloader) make sure you install Windows FIRST… reason for this: if you install Linux first, Windows will overwrite the Linux bootloader leaving you only able to boot Windows… if you install Windows first, Linux will overwrite the Windows bootloader, but the Linux bootloader can boot BOTH OS’s, Linux will “discover” windows during installation and add widows to the boot screen as an option.
Also, if you use a single bootloader and you’re not careful of where you put stage 2 of the Linux bootloader, you may end up in a situation where you NEED to have the USB drive attached to be able to boot EITHER OS.