Some apps will happily install to an external FireWire or USB 2.0 disk - but only if it's an HFS-formatted disk.

Depends on your hard drive and which applications you're trying to install on it. Starting with the hard drive, it needs to be formatted in some flavor of Apple's Hierarchical File System (HFS) format, as opposed to DOS or Unix file systems. Launch Disk Utility (/Applications/Utilities/) and select the disk from the list on the left. Click the Erase tab and see what's listed in the pull-down labeled Volume Format. If it's not an HFS variant, back up everything on the disk to another location and reformat it as HFS (any type).

Of course, some apps, including everything Apple makes, Adobe Creative Suite, and Microsoft Office, are tied into the system such that they will only install on the boot drive. If you really want to be tricky, you can install Mac OS X on an external drive and offload applications that way - just keep in mind that you'll have to boot off of this drive to use the disk-finicky apps.