Like kisuke3 said, just install Leopard on the external hard drive (boot from the install CD/DVD, choose the external as the destination, install).
Then, use the "Startup Disk" pane of the System Preferences to manage which disk you want to start up from, and reboot into the new system.
Be aware that older PowerPC-based Macs (PowerMac G4, iMac G5, etc.) cannot boot from USB (only FireWire).