I do that same exact thing, to be honest.
I use some old xbox hdd that I have from an old xbox I modded and replaced the drive on. They work great, and are small, I usually just leave it in there and disconnect it until i need to mess with reinstalling for whatever reason.
They are 10 gigs, or 8, depending on which brand they are, but they are plenty big for an os to sit on, along with any other programs that you like to have and your drivers too.
I use the drive as sort of a "boot drive", so if something took a turn for the worse, I just pop this baby in and then use it as a copy drive, and then i don't have to mess with sitting around for hours getting windows back on and then setting up all the drivers and other programs I would of had to do otherwise.