In my experience, an external drive connected with USB 3 or Thunderbolt is fine for your daily work. Video and render files are fine running off external drives unless you're working with very high bitrate footage.
Archiving files on the other hand is tricky. I have a 1TB USB 2 drive at home, but that's pretty insufficient. That drive could die any day. To be totally safe, you need to back up to two drives or a mirrored RAID. G-Tech and Lacie both have pretty good options, but they can get kind of pricy compared to standard external drives.
