Daniel thanks for the article link, and I believe I have done what is indicated there for a Win 7 host.
Basically, I have removed the drive letters from the external drive in Windows diskmanagement, and 'unmounted' the drive, I think, by setting it offline using diskpart.
And I am not trying to use the host laptop system partition/disk, this is a different and external drive. Should show up as physicaldisk1 in the 'add' dialog dropdown, but it does not. There is no error message, just isn't there.
Is there something special that needs to be done in Workstation 8 to recognize an external USB physical drive? I will say I've had no trouble using Workstation 8 to write output to usb-attached drives in the past, even using the same drive dock. But in this case I would like to add the external drive to a new vm guest, one step in trying to do a p2v for a dead computer. But so far, I am stuck at the step of trying to get Workstation to allow me to add it.