While I don't think that using an *external* hard drive would be the best idea, you can certainly customise the installation procedure for Music Maker to differ from the default settings (i.e. C: drive). I would recommend using a second internal hard drive, for which you can be sure that it's always connecting to your system under the same driver letter and via a reliable and high-performance bus interface.
Please note: The content/soundpools path probably has the most potential to save precious space on your main operating system SSD in the long run (if that's what you had in mind). So, you might want to relocate it to a different drive. However, it can only be set by the very first MAGIX program on your system to use it. If there's already another MAGIX (music) program on there that is using it, you may find that it's locked to the current location, and cannot be modified in the dialogue pictured above.
Hard drive space is one reason. Most of my music programs are on an external HD. Cheers:)
That's a perfectly valid reason. However, as I hinted at above, you might want to consider installing another internal hard drive that's hooked up via SATA and always registers in Windows under the same drive letter. Don't get me wrong - your setup with the external (USB?) drive might work out just fine for you under most circumstances, but there are some potential pitfalls associated with it. Other than that, I hope the info above answered your question about the customisation of the installation.
@ralftaro thanks for your tips. an internal install is the best as you pointed out. The soundpools take up a lot of space so maybe I could put them on an external drive. But I do have other programs that are on external hard drive with very little issues. Has anyone installed music maker program on their internal hard drive and the soundpools on an external hard drive? Cheers!!