You have asked three questions there;
Should I have an internal or external server? - To my mind if I can get someone else to host, maintain, backup and provide power to a server rather than me doing it that seems the best choice. However, cost is usually a factor in this decision, so if it's free to do it yourself or £1000 a year for someone else to do it the school may have some input.
Is it Is it easy to install? - I have just setup a small server for two teachers to experiment on. 500Mhz Celeron, 2G of RAM. It took 30-40 minutes to install CentOS (my personal choice, but you choose yours), about 5 minutes to download and dump the Moodle tar archive into /var/www/html. Set permissions, run web front end to configure Moodle setup a dns entry so the teachers can use a nice name for the server, another 10 minutes or so.
Is it easy to design and create content? - To get good quality content is very difficult, I am technical and let the educationalist do this. I just help when they don't know the tecnicalities of how to do it. This area is where nearly every install falls on the floor and dies. It take time and effort to (make that a lot of time and effort) to get any VLE to 'do its job'. Months and years are not un-common from what I have read on this forum!
Hope that helps