You should be able to, though I've never tried it with USB 2.0. I've always used a FireWire external HD. As long as it shows up on the desktop right now when its plugged in and turned on, then it will work. Basically all you have to do is turn it on, put the Tiger Installer DVD in and boot from it, then when you select your destination, just select the USB External HD and it will install to the external HD. I've done this before many times. I have Tiger installed on my external HD in case the HD dies in my PowerBook. Then I can still use my PowerBook.
Again, not sure how well it will work with USB 2.0. I know that FireWire works great.