difference in external hard drives

The only differences between a 3.5" and 2.5" drive of similar capacity and RPM is physical size and sometimes the connector (IDE primarily - SATA connectors are identical). Also, some 2.5" drives will offer slightly faster seek times due to the heads having to travel less distance.

Edit: One more advantage with 2.5" drives is that most of them can be powered directly through the USB or Firewire bus.
 
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