Having Photoshop's scratch file on a separate hard disk sure is a good idea. 'Separate' here means, not on the same physical disk where the operating system's page file resides (using different logical partitions on the same physical disk doesn't help). It does not necessarily mean, external.
However, before investing in another hard disk, consider upgrading your RAM. That's the most effective single factor for speeding up Photoshop. And RAM is cheap these days. But hard disks are cheap, too ... and having another is useful not only for speed reasons but also for data safety reasons. You should never store important data on one single hard disk only! Of course you should have 2nd- or 3rd-level back-ups that get stored outside the computer (if not outside the house) ... but for a quick first-level back-up, a second internal hard disk is handy.
It's a bad idea, however, to use an external hard disk for Photoshop's scratch file because it'll be waay too slow ... well, except it's an eSATA disk. But USB and FireWire are slooow. External USB hard disks are great for back-up purposes but not for temporary working files.
By the way, Photoshop will make extensive use of the scratch file even when the Efficiency indicator is at or near 100 %. For example, all the history states go straight into the scratch file and will get recovered from there if needed.
-- Olaf
