a 3.5" hard drive is a typical hard drive you find in your PC. If you use a 3.5" external hard drive, it will require a power supply, and it would be somewhat bulky to carry around. Whats good however is you can get a more storage capacity for a lower price with 3.5" drives, as well as higher performance.

2.5" drives are usually used for notebooks, and are usually small in size, and require very little power to run. 2.5" external drives mostly do not need external power supplies (USB power is sufficient), and are very handy to carry around. The downside however is it comes with limited sizes (160GB is the largest if i'm not mistaken), and are somewhat expensive considering the fact that they offer low performance, and limited storage space.

--------------

If you're concerned about vista compatibility, you can always request to have WinXP pre-installed from these vendors. Its not a big deal, even Dell still offers WinXP for most of their products.