If the USB drive is formatted to the FAT32 file format it should see the music files and be able to play them from there. Granted, I haven't tried this myself yet as i don't plan on using the PS3 for my music (do all my music listening in the car on my iPod).
If you do want to use the media streaming you should be able to with the external drive hooked up to your PC and set it up for sharing the files. The PS3 would then be able to find it that way and save your PS3's hard drive space.