Would it be adviseable to store alternate night backups on one external hard drive?
So if I have three 1TB external hard drives that can save up to three individual backups on one drive, would that still considered a reasonable backup system in case of disaster/recovery?
Not to be snide, but only you can say what is reasonable for your situation
If your business can survive wih the data from last night's full backup (plus as many others as are on the drive) then what you have outlined (rotating the drives daily) is acceptable.
If for whatever reason (maybe audit requirements?) you must have weekly or monthly backups available for a year, then of course what you have outlined would not be reasonable
Depending on how vital each day's data is and what the backup window looks like, you might consider a FULL on Friday with INCR or DIFF the reast of the week, rotating your drives weekly.
What ever makes you feel comfortable in the face of a bare metal restore is what you should do.