Yes but its not so easy as windows will be running when you try to do it and therefore it won't be able to copy it. You need to use a third party bit of software such as Norton Ghost and run it before windows starts.
I'm afraid I don't know that much about it as I've never tried it, don't have the software for one thing. Leave this thread open and I'm sure someone who is knowledgable about this sort of thing will advise further. As far as I know any external hard drive will work but again wait for some advise from someone who knows more about it.