This kind of Linux installation is unusual, and can be problematic if you don't do it carefully. I'm guessing the GRUB or LILO bootloaders are not getting installed on the usb hard drive, so the HDD is not bootable. Or else the Linux installation didn't make it to the USB HDD at all for some reason.
This webpage describes how to do the install: How to create an external USB bootable Linux hard drive (without dual-boot) | Novell User Communities
If your laptop doesn't have a "One Time Boot Menu" as described in steps 7 and 8 of Method 1, modify step 4 to "disable the internal hard drive and set boot order to boot off of the CDROM drive first."
If you are having trouble getting into the computer setup with the USB HDD plugged in, I suggest you delay plugging it into the computer until after step 4.
I now have been able to alleviate the boot issue. When I disconnect the mouse pad connector, the Linux now boots continuosuly with no issues. So now the question is what does the kernel do to the mouse pad that would prevent the laptop from booting or reset the system?
There is a small 8-bit micro-controller with its own watchdog timer under the mousepad. I find it hard to believe that this device would have the ability to reset the laptop.
Anyone have any ideas?
That is really odd. I doubt that anyone has run into that problem before. Have you tried running Linux with a usb mouse plugged in? That might get it to work without leaving your mousepad permanently disconnected.
It sounds like it could be a driver issue which is bypassed by unplugging the blighter! Have you run all updates for your distro?