Replying to Where to Keep Video Files For: Best Performance While Editing

So I just have a little problem and a question.

Issue: The other day I transferred all my video and photo files from my laptops 500 GB internal drive to a 1 TB external drive. Today I imported footage that was on the external drive to Premiere to edit, and I noticed it was super slow and laggy when attempting to play and scrub through it.

Idea1: My initial thought was that it was due to the footage being on an external drive connected via USB 2.0 and it simply being too slow.

Idea2: I also have a theory that it's due to the footage being 1080p, I can edit 720p smoothly, but I don't think my laptop can handle the 1080 footage with it's current components.

Question1: Just wondering if it'd be better for me to make a small 200GB partition on my internal drive to store footage when editing, or just keep it on the external drive?

Question2: Also would it be possible for me to edit in a 720p timeline and then export in 1080p?


I apologize if this isn't typed out very logically, I was in a rush.