works great!
I went and anyway moved my Parallels VM to the external USB HD.
I am happy to report that there is absolutely no difference in performance.
I tried suspend/pause/restart/start/shutdown on Parallels 5 and I get similar runtimes:
Suspend: 4sec
Resume: 12-14 sec
Restart: 60 sec
Pause: 2 sec
shutdown : 26sec
(Note: These are all averages from atleast 4-5 times)
They were exactly the same when the VM was on my Mini's HD.
Also I did other tests, like moving files around, browsing, playing Farmville on fullscreen, brought up some apps, Word/PPT and no discernible difference atall.
My HD is 7200 RPM WD 3.5in.
On an another note:
Parallels 5 is great in terms of speed as noted above.
But it is still quite buggy compared to VMware 3.0.
Lots of problems with switching between the ridiculously many modes, problems with resolution, unnecessary dock icons and the annoying double lines.
But I still purchased it since I dont use Win7 that much and prefer the speed and will live with some workarounds.