Correct; Time Machine will, sooner or later, delete it's copies of things that are no longer on your system.
Yes, getting an external HD for your media files would probably be your best bet. Before you start putting things on it, be sure to format it with the GUID partition map scheme and the Mac OS Extended (Journaled) format, per #1 in Using Disk Utility. That way, Time Machine can back that drive up, along with your Mac's internal HD (assuming there's enough room on your TC). See Time Machine - Frequently Asked Question #32 for details and considerations.
Any good-quality external HD will work for this purpose, as long as it can be formatted for a Mac (which nearly all can). Prices have gone up lately, unfortunately, due to parts shortages because of the flooding in Thailand.
For fast access to your media files, especially if you do much photo or video editing, you'll probably want a FireWire 800 connection. It's a bit more expensive, but roughly twice as fast as FW 400 or USB 2.
Some folks swear by a particular brand, others swear at the same brand. đ
I recently got a Mercury Elite Pro, from OWC Sales (who have a good reputation here).