I fixed my /dev/sda MBR, so all is well on that front.
As for the PVE on the external USB, here is the approach I am trying:
i booted the notebook into Ubuntu, installed lvm and kpvm, and mounted pve-root and pve-data under /mnt/pve-root and /mnt/pve-data, respectively.
Mounted another external drive under /mnt/extra, and then tarred up pve-root as pve-root.tar and pve-data as pve-data.tar.
Unmounted the pve fs, and removed the LVM partition from the drive.
Created separate partitions for root, data, and swap matching the size of the LVM fs set up by the pve install, created ext3 filesystems.
Mounted them as /mnt/pve-root and /mnt/pve-data, now restoring the tar files.
Then I will adjust the Grub menu.lst to use /dev/sdb2 ( hd(1,1) ) as the root device, and will adjust /etc/fstab to mount the right partitions, as well.
Then we shall see
This may not be advisable for a production machine, but then I would not run a production machine off an external USB drive, anyway. For testing and playing around with various appliances it should do, at least until I can afford to buy another 2.5" SATA disk for this notebook so I can install it directly.
UPDATE: It seems to work, I had create grub entries in the /boot/grub/menu.lst file of my Ubuntu install on the first hard disk, since there is no mbr on the USB disk. Gave me some error messages while booting but in the end it mounted everything and seems to work.