Since years, I use iTunes in combination with an external hard drive (firewire) because I have a fairly big library (200GByte) which would fill my internal hard drive unnecessarily. Contrary to USB, data transfers over firewire don't use the computer's CPU to operate (see
http://en.wikipedia.org/wiki/Firewire#ComparisontoUSB). You will not have any problems concerning CPU power, iTunes will take its share either way (music on internal or external hard drive).
External firewire hard drives are MUCH faster (~40-80MByte/sec) than what is needed for a constant music stream (several Kbyte/sec for mp3, depending on encoding), don't worry about that, either. I also noticed that, even under heavy load, the music never stops, so iTunes always gets the CPU power needed to play. Mac OS X handles that very well, even when the CPU is under 100% load.
In conclusion, I would predict that you will not see any difference in performance, the resources used by iTunes are just the same in both cases. Also, iTunes in general is not very demanding, and will not make an noticeable impact on a computer's performance when using other programs at the same time. This is true for recent machines (Intel CPU), I am not sure about older computers, where you probably could feel the difference between iTunes on and iTunes off. I remember that I would get better frame rates in Unreal Tournament if iTunes was closed, but that was ~8-10 years ago. This would be independent of having your music on the internal or external hard drive, anyway.
The only question is: do you need your internal hard drive space or not? That, in my opinion, is the only criteria. As I need my internal space for other purposes, I have my iTunes library on an external hard drive.