Is this crash normal

It could be a low memory issue. iOS is supposed to manage memory automatically, but I've found that it's not always perfect. Try quitting every single app and restart the device (hold the power button down for several seconds, then slide to power off, then power on again) to see if that fixes it.

There are multiple scenarios in your question. Your final objective is to run Xcode 4.2. Since Xcode is free, you can always try an Apple Store, they may be able to give you a hand with that and install the SL version for you if you charm them enough. That's the simple route, never underestimate an Apple store.

If you want to go ahead and install a Lion, you can connect any external drive (8GB Penn Drive won't cut, too small, too slow), you should rather get a cheap USB2/FW800 (if your hardware supports it) 500GB drive (or even less) and you could use that as the installation drive (make sure it's connected when you boot your Lion's bootable media).

Another alternative (more time consuming but more "secure") is to use an external drive the same (or bigger) size as your current drive, clone your current bootable Snow Leopard into it, make sure it boots (more on this later) and then install Lion in your current drive, as an Upgrade. You can always boot back your old backup drive with SL (and clone it back to Lion if you prefer, including the "hidden" Lion Recovery Partition).

This way you know your original drive stays untouched in the Backup and you can always bring it back. I wouldn't, being so close to ML, I'd just stick with Lion for a month or so, but that's just me.

So how do you boot an external drive or a different bootable partition?

When the computer is starting (and you hear the chime), press and hold ⌥ and wait for things to happen, you should see a list of bootable media (and partitions).

How do you clone your drive(s)?

Using the very reliable and free of charge Carbon Copy Cloner. Rather simple to use.

Remember, after you make a bootable clone, always restart your computer and test the clone making sure it boots and that your data is there. You don't want to find out in a couple of weeks that what you thought was your backup, doesn't work at all.

Last but not least, if you need help installing OS X on an external drive, here's a simple tutorial.

Good luck in your Xcode endeavors!

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