Trying to update iphone from ios4.x to 5.x moved iphoto

Moved Iphoto and Itunes libraries to external drive with 700 GB+ available
(Those applications won't open anything without the drive hooked up-I think those moves are legit.)
when I click the button in itunes that says " a newer version of the iphone software is available...."
it wants to back everything up and I get to this:
The media on this iPhone cannot be backed up because there is not enough free space on this computer to hold all of the backed up files (10.61 GB required, 4.97 GB available). Would you like to continue to update this iPhone?
Those files shouldn't be getting squeezed into my tiny laptop hard drive, they should be effortlessly plopped into the vast expanse of the LaCie external thing.
In a spirit of "what the heck", I just tried it anyway.  The stuff is backed up already.  It gave me a "startup disk is almost full" message and I aborted the process.
This seems way harder than it should be.  What am I doing wrong?

Thank you-that makes sense
now in order to get the thing to work I need to get
Mac OS X: ~/Library/Application Support/MobileSync/Backup
onto the external drive.  I gather that that it isn't so straightforward, I may need to create a "symbolic link"
any good rescources on doing that ?

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