An external hard drive, of any size or type, is an option. You can also use an internal drive (generally, slightly lower in cost) as well - assuming you have space and an unused ribbon port & drive bay. Internal does suffer from increased liability though in case of catastrophe - all your eggs (drives?) in one basket, so to speak.
Keep in mind that right now calibre has a bit of a problem with network drives. They work, but very slowly. I think Kovid said it will be fixed in v0.6, but cannot remember for sure.
USB flash / thumb drives can and do fail without warning, although its rare. This means that if you're going to use a flash drive as storage, or just to transfer books, you should be careful not to erase the original copy of the book before transferring
and confirming that you have a good copy of the book in the destination library.
This is less of an issue if you have a good, offline copy of you library. We're all making back-ups to some type of offline media, right?
