Is it a good idea to create a "soft link" from iTunes Library to an external hard drive to release hard drive space?
It's a better idea to copy the iTunes Media folder to your external hard drive, then go to iTunes Preferences > Advanced tab and change the iTunes Media folder location to the one on your external disk.

You can also move the library file itself (in ~/Music/iTunes/ on my system), but I don't recommend doing both at the same time. There're other questions around here that go about explaining how to use a different library location.

To more-directly answer your question, I don't know of any downsides to using symlinks, but that's because I've never done it. I have done the approach I described here and it's generally better to avoid going behind an app's back if you can.