I read in few forums some had success and some didn't. I haven't tried it personally. But I think it should work.
Like Venkat said, buy a 1 TB and soon even that wont be enough. I am not really happy with SeaGate. I have a Maxtor External 1TB which works like a charm. I bought it for 5800 rs 2 months back. I believe Maxtor is very good VFM
You can check latest prices at:
http://www.deltapage.com/
Its a chennai based IT shop and I use it as a reference for price point.
All 1TBs are a/c powered and I always trust such systems in comparison to USB powered as they are power hungry. In fact, even though 500GB is available in USB powered I would still buy a/c powered. They are better in longer run.
2.5" is used in Laptops and 3.5" is used in Desktop. Thats all the difference. Since you are buying now, buy a 1 TB external a/c powered hard drive. Don't buy 1.5 TB as the prices are not worth it.
Hope it helps!