you can use the apple express with no problems to connect to your stereo and if you need help with making it work post back but it is fairly easy to setup. using your express wirelessly to play on your stereo will not interfere with having your music on an external.
as far as the itunes on the external goes there are several ways to hook it up and again if you need help back here. you can hook it to another mac or pc to share it over the network. once you have the HDD set up and sharing you just need to copy your itunes folder to it as well as.
i have 2 itunes folders one my home network drive and one on my macbook. i keep about 100GB's of my music on my macbook (i have a 320GB on the macbook) and i keep my main itunes (325gb's of music) on my network drive. if you hold down the "option" key when you fire up itunes you can then select the itunes database library file you want to load. so you could select the one on your external or the one on you mac. just remember that if you select the one on your home external the next time you fire up itunes it will look for it and if you are not at home it will say it cant find it so you will be prompted to choose the library you want just like when you hold down the option key and you then just select the itunes database file on your mac which is in your home>music>itunes folder.
hope that answers your questions
good luck
also if you have another pc/mac on your network you could use that as your main itunes library to use when you are at home and just connect your external directly to it. this way you can just fire up any itunes on your network from any mac/pc (even your friend that might be visiting) and connect to it. you do this by going into your itunes library on the main pc/mac that you are keeping your itunes on and turn on sharing. you will then see that library as available in any itunes from any machine that is on your network and play that entire library from the sharing feature. the only drawback to this method is that you can not create playlist etc.. on the mac/pc that you are streaming to since you are just able to play the songs/videos from the main itunes.
hope that made sense