I would like to install Windows 7 on an external USB 2.0 500 gb hard drive. Is it possible to both install to and boot from this USB drive from my MacBook Pro 2010?
As far as I know Microsoft lock their Operating Systems so that you cannot run them directly from an external storage device. Microsoft say something about it not being a 'primary means of storage.' More like them making an attempt at stopping people running multiple computers of on copy of the OS, as allowing them to install it on any storage would allow people to make loads of copies. Hence, Linux does not have this problem. I personally do not do much gaming, and have never needed Windows on my MacBook Pro, so have not dabbled in the whole 'Windows on my Mac' thing. If you really do have a problem with sticking Windows on the MBP's Hard drive and booting either natively or through virtualisation, then the following links may help, although the guides are designed for XP and I have no idea if they will work on 7.
Prepping the install CD (scroll down)
As I said, I cannot guarantee this will work for 7. I hope, however that I have helped in some way.
Disclosure: I have never attempted to install program files to an external drive, so I have no idea on how programs will perform. I supply this answer as a possible solution with no guarantees on performance.
If you were contemplating running an entire Windows install off an external drive, you could try boot camping Windows with 20-30 gigs of your SSD. That should suffice for getting Windows operating. You then would have to install games to the external and run them off that.
I really have no idea if you would be able to get enough bandwidth for loading textures etc from USB 2.0, but then again you didn't clarify what type of games (casual, graphics intensive, etc), so it just might be sufficient.
To answer the actual question: everything I have ever read on the subject of actual running full Windows from a USB drive indicates it can't be done. I believe a couple projects have managed to get Windows XP running well enough on a USB drive, but I myself have not used them.