Time Machine Setup wont detect HD
Open up the program Disk Utility, found in the Utility folder.
Select your external HDD, and click on partition. Choose Options,
then select Guid Partition Table, click Ok, then back to the main screen and click on Apply.
Note, if you have any information on your external HDD back it up before partitioning. Any information on the HDD will be erased, in the partitioning of the external HDD.
Viola! and your done.
Before I do anything else, I install Leopard on the external HDD, to have another boot disk in the system.