Yes, I had an external HD in a Firewire case until the case failed (after a few years), capturing dv video worked great with it.
At the time I wasn't sure if it was the drive or the case that failed so I bought a new HD and eSATA case and capture to it now. Find my post in HERE for the drive/case I bought.
I had a USB case that I picked up for free (after rebates) and placed the HD (I thought might be bad) and it came right up. I now use it for backups.
Firewire drives are fast enough to capture video. Go for it.
What Sarasdad is referring to is an actual product called a "Firestore" (by Focus Enhancements) which is a standalone hard drive recording unit designed to connect to your camcorder's firewire connection and capture video files as you record.
After you capture the files, you can then transfer them directly to your editing computer -- faster than capturing from tape (where 1 hour record time = 1 hour capture time). Also, near-zero chance of "dropouts" on the hard disc recording, compared to tape.
I know you guys were talking about external drives to attach to PC's, but for others who are viewing this and don't know this yet: you can't just plug a firewire hard drive into your camcorder and expect it to record anything. The hard drive basically needs a computer controlling it, sending it information, and telling it to write it to the disk. So this firestore device is basically a hard drive with a built-in computer that receives the data from your camcorder and then writes it to the hard drive.
Sarasdad -- if you don't have any luck here, go over to the Vegas Pro forum and ask. You're more likely to find users there who have experience with Firestore and other similar devices. (I have no experience with anything like this...) I do believe there are several competing devices like this.
Ah, yes, don't I feel silly now. I do recall talk of that now. Click the Search link above and search for firestore in the Vegas Video forum, several threads mention it.