The alternate cd can be downloaded from here .
Boot from the cd , and use the text mode to install. Follow the instructions till you reach the point where you are asked to choose to partition the harddrive .
1 - Do a ALT - F2 , and find out what is your external drive. Simpy execute fdisk -l.
2 - I didnt choose the LVM install , sometimes people face problems . Choose your usbdrive . it should be more like sda , sdb . Mine was the second drive so it was sdb.
3- Let the wizard do the package installation , you can do a ALT-F4 to see if its really installing the packages as at times it seems to get froze.
4- When you are asked to choose the location to install grub make sure you type/choose the name of your usbdrive . In my case it was /dev/sdb.
5 - You'll be asked to take the cd out and do a reboot after everything is done.
6- Dont take the cd out do the reboot , get into the rescue mode . You need to go through a few steps again like language settings , keyboard and all that. Finally you'll be presented with a screen to choose the partition where the root filesystem is installed / to be rescued.
Choose the correct partition , in my case it was /dev/sdb1. The installer will mount this partition can leave you at a Shell prompt . Do a ALT F 2 to open another shell and do su - t get a root shell.
7- vim /etc/initramfs-tools/modules add the following modules
8- vim /etc/mkinitramfs-tools/initramfs.conf , add the line
9- Recompile the initrd.img
mkinitramfs -o /boot/initrd.img-kernal-version
10- Edit the /boot/grub/menu.lst . Search for groot , change it to groot(hd0,0). Also just after the comment "End Default Options" change the root to (hd0,0) , repeat the same for rescue and memtest entries . Also change the entry for Windows incase you have a dual boot with windows , for this change root to (hd1,0).
Take the cd out , Reboot . Make sure you enabled boot from usb in the bios .
Modified from the original article from Ubuntu forums article for Ubuntu 5.10 Breezy Badger