Changing the default iTunes download directory
You can move the Downloads folder in your ~/Music/iTunes/iTunes Media/Downloads directory to your external drive, and then create a symlink (symbolic link) to the new Downloads location, and place that symlink in the 
~/Music/iTunes/iTunes Media/Downloads directory.

Here it is in step form:


Quit iTunes.
Go to ~/Music/iTunes/iTunes Media, and move Downloads to your external drive. Ensure you move the folder, and you don't just make a copy.
Open Terminal (located in /Applications/Utilities/Terminal.app)
Enter ln -s "/Volumes/NAME_OF_YOUR_EXTERNAL_DRIVE/Downloads" ~/Music/iTunes/iTunes\ Media/Downloads


Substitute the NAME_OF_YOUR_EXTERNAL_DRIVE part with the name of your external drive that you placed Downloads on. Downloads needs to be in the root directory for that command to complete successfully.