Usb extreme is very slow and it uses usb port which is version1.1. Most of the games are not compatible with usb extreme and the videos are choppy.
So the best way is to connect an ide hard disk internally which does not utilize the usb port.This is possible even in slim ps2.
Go to ebay.in and search for "ps2 hard disk", you will find ps2 with integrated hard disk(160 gb) selling at a price of rs 9,999.