I run my 1GHz 12" PB on an external 21" CRT at 1600x1200. It works very well. Admittedly, it's not nearly as smooth as the built-in display. Expose has a hint of choppiness, while on the internal display, it's buttery smooth.
Whenever I use dual monitor mode, with the CRT and the internal display, I do not notice much of a decrease in performance on either display. I do not play games however. Not even the iTunes visualizer drops much in performance. I also run 768MB RAM, which I assume makes a pretty big difference from the stock 256MB. Suffice to say, unless you're going to be gaming, dual monitors with the 12" PB is quite good.