If you already have the install DMG for Snow Leopard, grab your external drive and do this with your current OS X install. All you need is Disk Utility.
-Plug in your drive.
-Open Disk Utility.
-In the Erase tab, erase and format the external drive as HSF+, which Disk utility calls "Mac OS X Extended (Journaled)"
-After that's done, go to the Restore tab and drag the DMG into the Source box
-Then drag the newly erased external drive icon into the destination box
-This will take probably around 20 minutes, depending on how fast your computer and hard drives are.
-After that is done leave the external drive plugged in and restart the computer.
-Immediately after the GONGGG start up sound (I usually do it in the middle of the sound), press and hold the "alt" key.
-If you did that correctly, the computer should show you the option to boot from the USB drive, select it.
-After it boots from the drive, don't install yet. Go to the top menu bar and find Disk Utility.
-In Disk Utility, select your internal drive in your computer and go to the erase tab.
-Format it to HSF+, otherwise known as "OS X Extended (Journaled)", and name it whatever you want. Macintosh HD or whatever.
-There. You just prepared your computer for a fresh install of OS X Snow Leopard.
-You can now go through the normal installation process and should be done in another 20 minutes.
After you're all done installing you can go back into Disk Utility and erase your external hard drive to be used as storage.