Well with a HDD it depends on if the external caddy has a DOS or not. If it doesnt have some sort of DOS, then it deffo wouldnt work as it wouldnt be able to see the drive.
Its all very complicated tbh, dont forget that with head units reading memory cards, thats what they are built for, not HDD's.
16GB flash memory cards are out now and the price is constantly dropping (hence 4GB cards are less then £20.00 nowadays), so the advantages of an external HDD are low. Also, dont forget an external HDD runs at very high temperatures in comparison, so needs extra cooling and space to breath, but it also needs a LOT of padding if you are to put it in a car, as it HDD's dont mix well with the amount of bumps on UK roads, over time it would get a lot of bad sectors.
Id say look towards a 2.5" drive for less power consumption and a smaller form factor and therefore more room for cooling and shock absorbtion.