iDVD 4 and 5 can be tricked into supporting an external drive, iDVD 6 supports them stock (as long as they are supported by the OS,) but I don't believe ANYTHING can trick iDVD 3 or earlier into working with an external drive.
And... It may be a violation of the license to run iDVD 3 on a system that did not ship with a SuperDrive. (Looking back, it appears that iDVD 3 only shipped on computers with SuperDrives, and was not available separately.)
However, if you have a computer with an internal SuperDrive that came with iDVD 3, but you would rather use a newer/faster/better external one...
And a quick search (this
might be considered promoting violation of a license, so I won't link, you'll have to figure out the search on your own,) does have one person claiming that he got iDVD 3.0.1 to burn to an external Pioneer DVD drive on his 667 MHz TiBook running OS 10.2.8.
On an off-topic note, in my searching, I discovered that the page for the 'original' iLife is still live on Apple's website!
http://www.apple.com/lae/ilife/. While apple.com/lae just mirrors the current page, trying the various pages that should be there results in seeing the pages as they were in late 2003. (Or early 2003, in the case of iLife.)