perhaps i'm misreading your question, but it looks like you have installed, but cannot boot Linux?
if so, is it possible that the kernel you're attempting to boot has no knowledge about USB devices? by default, USB support is loaded through modules... by rebuilding a kernel with USB support compiled in, the new kernel, when booted should recognize the device, and /etc/fstab, mounted after booting, should have the proper entries for the rest of your file system... (i assume that the swap device is going to be on the USB drive?)
if you're having trouble installing Linux on the USB drive while it is attached to the IA-1, why not try installing Linux on the USB drive while attached to another computer, boot from that drive, then reconfigure LILO using proper entries for the IA-1?
another approach might be the one i used to install DragonLinux on the 192MB CF... use a CF and create a DOS partition with enough room to boot to DOS, then copy LOADLIN and the RH kernel to the DOS partition... install Linux on USB drive... insert the CF into the IA-1, have it boot to DOS, then use a .bat file or use LOADLIN from the command line to boot Linux (LOADLIN allows various kernel arguments to be passed via the command line; again, the boot kernel should have USB support compiled in, and not dependant on module support (at least for external USB storage; other modules, such as for USB Ethernet devices, can be loaded after the kernel loads or after booting)
i'm waiting for my external USB caddy, and have a 10GB 2.5" IBM travelstar waiting, so i'm right behind you!