Many computers are not able to boot from an external drive. You'd need to provide information like what model computer you have, or what mainboard, as well as what type of drive you bought.
In general, using an external drive to run your system is going to produce massive performance losses. Firewire and USB are nowhere near the performance of an internal IDE or SATA drive (and I doubt you have an external SATA drive). External drives are great for adding quick large amounts of storage for things like personal files, photos, videos, but not for running your applications and operating system from.