I had to totally uninstall Steam, then create a directory on my external drive as in /Volumes/DriveName/Application Support/Steam/, install Steam, use the ln -s command for the newly created directory and the ~/Library/Application Support/Steam/ folder on my main drive, delete the original Steam folder on my main drive, and then I fired up Steam and it worked. I knew because I went to download Civ 5 and the available drive space referred to my external drive.
By the way, a little alias Steam folder pops up within the original Application Support, so superficially the process will look like it has produced an alias.
I'm a total Unix n00b, so the whole experience was horrible and took me 2 hours to figure out. Fix it, Steam developers. That's two hours I'll never get back.
~/Library/Application Support/Steam, itself -- the whole Steam folder -- to my new disk. Now everything works. – Olie Mar 29 '13 at 19:28