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Well, you wouldn't really install programs to the drive, per se. You would install any applications to your Applications folder. You might want to move your Music or Pictures folder to the external HD because they are likely very large. Most applications are that large.
 
Yes you can add an external HDD and put data on it, programmes are best left on the main drive in my view. Depending upon the brand it might need reformatting to be compatible with the Mac using Disk Utility

Uptil now I've use an external drive for data (photos, movies etc) but am just in the process of upgrading my HDD from 160gb to 750gb, the drives are cheap and you can pay someone to do it for you. I have had a problem with the new drive installation which is why I am on here looking for help
 
Programs that "play nice" meaning that they come as an .app file, you can put anywhere. Others that come with an installer you will generally be stuck with only being able to install them in /Applications or perhaps in home/Applications.
 
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