I bought two of these for my mum who never wants to delete anything she records.
It will work with an external USB Hard disk so long as it has its own power and doesn't have a 'power saver' sleep mode. (ie most Western Digital HDs won't work). A hard disk with sleep mode will be fine to record things if you're there to press the button. But if you leave it to record something more than 15 mins in the future it will go into sleep mode and it will fail to record.
I used the Verbatim 47513 1.5Tb drive which works fine and gives about 850 hours of storage for £90 (Dec 2009). I am a little bit worried about how long it will last being switched on 24 hours a day though.
Downsides:
It only has a single tuner, so to get the effect of a twin tuner I bought two and have one switched on and one switched off. Press the power button on the remote to switch between the two. All the cables you need to do this are included. It's not ideal but it just about works.
Every now and again it fails to recognise the drives and needs to have the power cable removed and replaced to reset it. My Sagem PVR also locks up like this occasionally - I don't think it's that uncommon.
It only has one week of programmes in the guide, not two.
It does not have the 'series link' function.
You can pause live TV and then rewind it, but you cannot rewind a channel you are just watching. Given the virtually unlimited recording space, you can just press record every time you change channel, but it's a pain if you like channel surfing.
There is no way of sorting the recorded programmes into folders, so I imagine once it is up to 850 hours it will be difficult to find the programme you want, although you can sort them either alphabetically or chronologically.
Hopefully they (or others) will one day build a proper twin-tuner Freeview+ PVR in this style. Until then, this is the best approximation.