For some strange reason, previous versions of iDVD did not officially support disc images or external burners. Presumably this was to force consumers to up-spec their purchases to include a DVD burner. However, it only served to annoy potential customers. Initially some third parties wrote software to allow external burner support, but Apple put a stop to this. Later on, Apple added unofficial support for both disc images and external burners in an Easter Egg, unlocked by two files called Hurz and Pfurz.
In iDVD '05 Apple has finally added this support officially. Disc images are officially supported by iDVD, and external burners are also supported if OS X natively recognizes the drive. There are a lot of drives out there than aren't natively recognized by OS X, but fortunately, an excellent little donationware application called PatchBurn can install profiles to add support for most drives in OS X.
Here is the drop down menu for disc burning in iDVD '05, running on my Cube 1.7 with DVD-ROM, with an external LG-Hitachi GSA-4160B Super Multi recorder (16X, dual-layer), in a generic Firewire enclosure:
Note that the "Burn DVD" option is not greyed out for my external drive, signalling that I have full support for it in iDVD. If your drive does happen to be one of the few that is not supported at all even with PatchBurn, you can still save the DVD as a disc image, to be burned later with another application such as Roxio Toast.
I suspect one of the reasons for the change of heart on disc images and external DVD burners in iDVD is Apple's new push for market share. The Mac mini is seen as a switcher machine, but it is also a machine perfect for that second or third Mac. There is no need to have a DVD burner on that second or third Mac if the primary Mac already has a DVD burner.
Whatever the reason, I'm just glad Apple has finally seen the light.