Question about iTunes on External HD

I currently have all of my iTunes music stored and external hard drive, however the way its currently configured (which is apparently the only way it can be configured, is that the "iTunes Library" file and the "iTunes Music Library.xml" file are both still located in the 'Users>Home>Music>iTunes' folder...
In playing around a little bit in an attempt to see if it were possible to also store these files on the external HD, I moved the two files to the same folder on the external HD that the "iTunes Music" folder on the HD is was (thereby removing them from the 'Users>Home>Music>iTunes'... folder), and then I created aliases of the two files and placed them back in the 'Users>Home>Music>iTunes' folder...
This was the only way I found that enabled me to store the files on the external HD along with the music...Is this safe to do? Does anyone have any comments regarding any advantages/disadvantages of setting up things this way?
Seems to me that if there are no obvious disadvantages of this setup, then the clear advantage would be that you have those files backed up on an external HD, which would not only ensure that if your computer became corrupt/crashes that you wouldn't lose all your playlists, ratings, play counts, etc...but also that if desired, you could simply take that hard drive to another computer and create the same aliases in the 'Users>Home>Music>iTunes' folder on that computer thereby allowing you access to the music and your playlists/settings from the alternate computer (whereas not copying those two files to the HD would simply allow you to transport your music, but not your playlists and other custom data)...
Isn't this right? Or is there some catch to this method? I'd love to get some confirmation one way or the other on this issue to give me a better piece of mind about the setup.

Yes, using aliases has been proven to work fine by
many users here. Often it is used to share a library
among multiple computers.
I'd make sure to include the library files in a
regular backup routine, just in case of corruption
issues (they are just as likely on an external drive
than on an internal one).
I'm trying to connect my iTunes Library to 4 Macs and based on the information you provided above, it might be done with an alias folder.
Can you explain this further?
PS Our 4 Macs are on a LAN hub and on a 8x1 FW switcher and we'd like to share iTunes among them all. The FireWire switcher will work, but it's precarious to hot switch. The LAN lines seem a better option.

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