OK, here's some updates after trying it:
Disk speed is about 70MB/s which is actually slower then the old HDD where the photos was stored before (~100aMb/s). But the increased storage space makes it worth it.
I have loaded the system on an internal SSD and the photo library on the external FW800 drive, and it works just fine.
The photo library is about 10,000-20,000 pictures hop that range from 5MB-30MB per picture, and editing works fine as well.
What doesn't work fine is playing full hd movies in photos from the external drive. There are noticeable stuttering when playing the movie, and I guess interface speed is the reason for it.
Luckily the external drive supports esata, so we can use that for a speedier connection when connecting to a newer Mac supporting thunderbolt.