sorry just to confirm, internal blogs means putting something like wordpress on your own website, and external means using blogname.wordpress.com or something like that?
i've been reading a bit about using either sub domain or sub folder and it seems there are benefits for both. using a sub domain in the past meant you could have 2 seperate google listings for one search, but google have changed and only do this for the bigger companies, e.g. ocuk probably will still keep forums.ocuk and ocuk.co.uk as a seperate site in googles eyes.
i went with sub folder for my first blog as supossbly the "link juice" that you get from a sub folder will roll up better to the main domain's page rank. imo it's also easier to us sub folder for more areas, e.g. shop and forum, as the usercould easily change the url at the end, but it's hard to change the beginning or the url