When first installing iTunes

Hello and thanks to all who take the time to help me out. First, I have used iTunes before, but by no means am I a poweruser. This is what I would like to know: can I install iTunes on my c drive but actually have the library on my external hd?
I have a 500gb external, but on my machine my biggest fixed disc is hardly larger than my iPod hd. If I fill my pod from my fixed disc I basically have to forget them for any other purpose which is just stupid. I find it hard to believe that iTunes is so poorly designed as not to allow the user to decide where the library resides.
When I recently re-installed Windows I copied my existing iTunes folder onto my external hd. Ideally I would like to re-install iTunes and tell it the library should be on my external drive, then in theory I could just dump the content from the backup copy of my old iTunes install. Is this at all feasible?
I know about managing my music manually, but I want to use Apple Lossless and of course would need iTunes for this. Maybe I am making things far to complicated, I really don't know. I actually have just now re-installed iTunes to see and things don't look good. Under the preferences and I directed iTunes to make the iTunes Music folder on my external drive rather than the c drive, iTunes ignored this. What next? Thanks for any suggestions.
Message was edited by: The Grudge

Thank you for your reply. I ended up blending a few things to resolve the problem. Your technique alone would have been enough I suspect, but sadly I had two library files in the original backup location. When iTunes first grabbed the library as you guided me to do, it grabbed an old copy.
I had to nuke the old library out of the directory, make a new directory and dumped the various folders containing the albums into this directory. I then used my text editor (UltraEdit32) to open the library xml file. I located the line in the file where the path to the old library was referenced, changed it to reflect the new directory. I then went into the preferences and indicated that iTunes music folder was the new directory.
When I used iTunes to then add new albums to the library happily it did indeed use this new directory! However all the folders containg albums I had put inside the new directory had to be added into the library one at a time via the Add Folder To Library option.
The long and short of it is that things worked fine, iTunes is installed on my c drive and the music files on my external drive as I wanted. And to boot I was able indeed to use all of my albums previously used by iTunes. I'm sure this has been a little bit of a dirty fix, but at the end of the day I have tunes and I'm mobile so all is good. Thanks again.
Message was edited by: The Grudge

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