You can play files off of an external hard drive plugged into the PS3 if your external hard drive is formatted in FAT32. Windows uses NTFS. Playstation uses FAT32. Playstation won't recognize your drive if it's formatted in NTFS. You need to reformat it for FAT32 if you want to play files from it directly plugged into the PS3.
Another problem you'll run into is that FAT32 will only let you put files that are 4GB or less onto it. It just doesn't support files over 4GB. It works if you're watching files that are below that size limit, but it becomes a pain in the neck --- especially when you want to watch the Blu Ray and HD movie files that have a larger size, and then NTFS & streaming through PS3 MS becomes the better option.