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There's no reason to think that Mountain Lion will slow down your Mac. Just make a backup of your data before upgrading with Time Machine > http://support.apple.com/kb/HT1427
Also, check that your apps are compatible > http://www.roaringapps.com Upgrade them to a compatible version or delete them before upgrading.
The external drive won't make the OS X Mountain Lion installer fail, but it's better to unplug it during the upgrade.
iWork '08 is compatible with Mountain Lion. iWork '09 includes OS X Mountain Lion features and can be purchased at the Mac App Store.
To upgrade to OS X Mountain Lion, I recommend at least 4 GB of RAM. You can check how much memory you have in Apple menu > About this Mac
I recommend you to install 4 or 8 GB of RAM at least. You can buy more RAM at OWC or Crucial > http://www.macsales.com Depending on the amount of memory you install, it will cost more or less