Is there a way i can have the HDD externally and still be able to use the MI? I want to just use the HD to backup my saves since there is only a limited space on the memory card
Well you can use uLaunchELF with a pendrive and back-up your game saves to the pen drive. What version is your PS2?
You can install uLaunchELF to your memory card in mc0:/BOOT/BOOT.ELF and boot ULE by holding R1 at start up. If your USB HDD is compatible with the PS2 then yes you can transfer your game saves to it with ULE, but the most compatible USB devices are the Lexar Jump Drives.