Yes, but you have to extract the contents of the ISO to that external drive
and launch setup from within an existing installation of Windows. I prefer
to the extra locally to a folder and launch setup from there. Why not not
use Virtual Drive software such Daemon Tools and use that to turn ISO into a
virtual DVD and launch setup from within and existing version of Windows?
DO NOT extract the files from the iso file, the iso will not be bootable,
plus I wouldn't update to a beta OS from your main stable OS. Download a
virtual drive utility, Andre mentioned Daemon Tools, I used Daemon Tools to
install Vista, and the install went fine.