I know its really hard when you Don't, have a DVD Rom to install Windows 7 on your system & the only thing you have is a image file of Windows 7 / Vista. If you Don't have an image file, you better get it from some one else.
well here are few steps on how to install Windows7/vista On your PC using your external hard disk.
Step 1. Connect your External Hard Disk to your PC & format it. ( before formatting backup the data somewhere safe on your hard disk)
Step 2. Click Start >>>>>>>>Type Computer Management >>>>>>>>Press Enter
Step 3. Select Option Disk Management on your left
Step 4. Click on your external hard disk >>>>>>>>>then Right Click >>>>>>>>>Then Select Mark Partition as Active.
Step 5. Now Extract Your ISO Windows7 Image file to your External Hard disk's Root folder (Main Folder)
Step 6. Restart Your system using External Hard disk as your 1st Boot Device. (you have to change the settings in bios)
Step 7. Save settings and restart again the Installation will begin. ( but remember after its first restart change bios setting to default again so that the installation can continue)
Its Done.
After Full installation is completed you can format your external hard drive.
Thank you and have a safe life.