Oh Jeff, thankyou thankyou thankyou !!!  You’ve nailed it nicely:

[the] biggest performance win is to put the virtual hard disks on separate disk spindles from the operating system. The biggest performance hit in virtual machines is disk I/O. Making the VM fight with your OS and swap disk makes this issue much, much worse. Additionally, today’s USB 2.0 and firewire external hard drives run on a fast interface bus, have large buffers and spin at 7,200 rpm, as opposed to 4,200 rpm for most laptop hard drives.

Still not covinced?  Then read Jeff’s full post “The Single Most Important Virtual Machine Performance Tip” — and treat yourself to a USB caddy and fast drive for Christmas.