Ghost2003 can be placed on a floppy or CD with DOS on it to boot without requiring a working Windows system. This Ghost rescue floppy/CD would also have USB/Firewire drivers for you to access your external drive to restore to your trashed system.

I'm not sure what you mean by what would happen if your drive failed completely - do you mean the drive you will be making backups to? If that is your question - well, redundancy is the key to making backups. Besides making periodic backups to the external drive, you should also make periodic backups to another media, like a DVD.