Yes, USB 2.0 has a maximum bandwidth of 480Mbps (in practice, the transfer speeds will be considerably slower, but still acceptable) while an iTMS song has either a 128 or 256 Kbps bandwidth. Even uncompressed AIFF and WAV (around 1411Kbps) can be played without problems.
Then again, what FS are you going to format the external as? It would almost have to be FAT32, or the entire point is moot (NTFS is un-writable in OS X without system mods, HFS is un-readable and un-writable in Windows without 3rd-party software, so you'd be back at square 1).
My recommendation is Mac Drive. It's some great software, and you always have your music with you (would suck to forget the drive or lose it/have it stolen).