Is your external hard drive formatted as FAT32? If its NTFS which is common when you use XP/Vista, then you need to convert it to FAT32 or reformat it. You can use utilities like Swiss knife and a few others.
I'm not sure if streaming VOBs will work using a media server like TVersity, WMP, etc. You'll have to get some input from others on that. It will save you time and headaches without having to format the drive. The only thing is it would have to be connected to your PC. As for checking if the drive is NTFS -- hook the drive to your PC, right click on the new drive and check the properties.