For whatever reasons if you need to install osx from an external hard drive, here are the steps I have tried and verified. In my case I installed snow leopard onto a mac mini from an external usb hard drive.

First of all, go get the snow leopard image file in iso or dmg.

Then we will need to prepare for your external hard drive. We are going to erase its content so please make a backup first.

1. Open up Disk Utility, select your external hard drive.
2. Choose the Partition tab, then pick two partitions. For the first one, click Options then pick Guid Partition Table to make it bootable. Pick Mac OS Extended format. Then set it to 8Gb for your CD image. Name it “Snow_Leopard_Drive”.
3. For the second partition, pick Free Space.
4. Click OK to commit the setup.
5. Now, click on the Snow_Leopard_Drive, the choose the Restore tab.
6. Double click on your snow leopard CD image, a white drive icon should appear on your desktop. Drag that icon onto the Source field.
7. Drag your Snow_Leopard_Drive icon onto the Destination field.
8. Click OK to proceed.
9. Put in your root password, then the CD image will be burned onto your Snow_Leopard_Drive.