first q – you should always be editing off a firewire drive for many reasons, much of what has to do w/how FCP operates. also it doesn't have to be a 5400; I have 2 of those and 1 7200 drive; they all work pretty much the same. However, if you are editing HD, then you will probably see a difference w/the 7200 but your processing speed will likely be the limit rather than the external.
you can actually run into some problems with a USB drive so please do stay away from those when running FCP.
your backup files should be on your hard drive; it's called the Autosave vault and you should find it in your documents dir which is the default when you loaded FCP unless you changed it. you can set it in your system preferences in FCP.
next q about transcoding files – didn't really understand what you were referring to until someone mentioned App Prores 422; I export all my files in this codec even if I've imported into FC as another such as H.264. just import the files and change it in your settings; you can also click on the timeline, then go to your settings for your sequence (go to Sequence, settings, you have to be in the timeline or it will be grayed out) and set your codec there for prores or whatever.
fyi, if you join D-word as a member you can post over in the FCP section as well as editing.