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I have a new iMac, quad core with Lion running. I want to install Leopard on an external drive to run some hardware that will not work work Lion.

I have formatted the external drive as Mac OS journalled and used GUID but when trying to install Leopard the Installer will not let me choose different installation drive

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Short answer is: You can't. Your iMac will only boot up with OS X version that it originally came with, or newer. Since you mentioned you have a new iMac, guess is it's new enough that it won't boot up using a Leopard install, even if it's on an external drive.

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