XBOX Live download question

I'm new to the 360 scene. I have an 20GB HDD with my XBOX. Is it possible to just purchase an external harddrive and connect it via the USB port to expand the storage capacity?

Thanks for your reply. I figured that was the case.

Once I purchase a movie, does it need to stay on the hard drive? Can I delete it and re-download it at a later time without having to repurchase it?