Dual boot versus VM storage use?
Using a virtual disk in VMware you can avoid dedicating space to Windows 7 that is just free space, unlike a dual-boot where you'd have to allocate a partition that has all the free space you will ever need.  (Probably true with other VM solutions, but I don't know.)  While a VMware virtual disk does not auto-shrink, it starts out small (on the host disk) and only grows as needed.  So that would be the smallest storage solution.

I would not expect USB 2.0 to perform well enough to run a Windows VM off of it, but I never tried.  Firewire would be OK.