external or internal blog

Install a blog to your site in a sub-folder Sarah and backlink to a specific post within your blog for a term you are trying to rank for. This gives you a shot at a valuable double listing in Google. A WP blog on your own site will also probably help your own site rank higher.

Plus, if your blog is hosted at WP, they could take exception to the commercial content on it and delete your external WP blog without warning!

This is not an issue with a self-hosted WP blog on your site.

A blog on your own site seems to almost be a must now days.
And you might get something that hits on Google that brings unexpected traffic.
I kept seeing people asking about a Sims 3 Demo(video game) and I posted in my blog that it didn't exist. It now has page 1 for that search and brings in a constant stream of people. I had no thought of it ever bringing in traffic, I just wanted to tell people the truth about it.
I also included image galleries in my WP install. Within a week I had #1 on Google Image search for Video Game Girls. I was amazed at the amount of people that hit the Google Images search. People from some of the large gaming forums also post links to my galleries giving backlinks from g4tv.com, cnet.com and a few others. Links I would never have gotten without spamming them just to have them deleted anyway.

Another thing to do besides have a blog on your own site is to have one set up at blogger.com also. Then link back to your blogger.com as an external link to relevant content.
Many people don't realize that linking to other sites also plays a factor in Good SEO and can have positive effects.

Good luck!