The SCSI Controller on this Mac does not require additional internal termination if no internal drives are in place. As far as I know, only Mac IIfx (and perhaps the Mac IIci) requires an internal device or special terminator when no internal device is attached.
The SCSI bus is a metallic pathway end-to-end. Normal devices do not re-drive the bus, so a terminator placed at the end of the external cable does everything needed for the external bus, and the controller (sitting in the middle) takes care of itself automatically.
Now about the fun project you are talking about. You can certainly install that drive internally, but you will need to provide termination at the end of the internal segment of the bus, regardless of what you have done externally.
Your drive may have two straps: One is called TERM POWER. This allows the drive to supply +5 Volt power (usually through a diode) onto the pin in the SCSI cable reserved for it. Wherever the terminator(s) are on the cable, they can tap into this power pin and use its power to run the terminators.
The second jumper you will see on some drives is something like Termination Enable. This allows the drive to use its on-board termination resistors or similar active termination to actually perform the termination. Older drives, typically only those under 0.5 Gigabyte, use three resistor packs in sockets immediately adjacent to the SCSI connector to provide termination.
An unterminated Bus usually hangs the entire computer, especially under Mac OS X, which is MUCH less forgiving than Mac OS 9. A drive that will not reveal BOTH its Make & Model and its Capacity/Size to utilities like Apple System Profiler and Drive Setup or Disk Utility, cannot be formatted or repaired by any software means -- in its current condition. If its cables and power are good, it has died.