I have windows 7 installed in my laptop.Can I install Linux as well keeping windows 7 as it is?If yes how to do it?And once I installed it, will I be able to set separate security settings to the two?

All versions of wondows use a file to find things on the disk this is called the MBR file.
If you install linux it uses a similiar but very different file called grub to do the same job.
MBR windows can only see windows.
Grub can see any operating system.
If therefore you install a linux onto a disk with windows it will install grub (also set up at least two or three separate partitions on your disk) and then give you the option (be carefull) of 'dual' boot. Ie you can then use either operating system entirely on its ow at start up time.
If you google ubuntu or grub either will give you the further information.

I wanted to be able to boot into linux as well as Windows 7 but I didn't want to go the dual-boot route so I installed linux and grub on an external (USB) drive. When I want to run linux I just F12 at boot time and boot off the USB drive.

I see that you have already solved this issue, but I would like to propose one more idea to you.

If you install linux (always after Windows as windows does not play nicely with others), and the linux is using the GRUB bootloader you can modify the grub file to display Windows first and then modify the time from 10 seconds to 1 second. This basically makes it like a normal boot except the boot time will take one second longer. The file you will modify (should you choose to do this) is :

And then should you choose to boot to linux it just takes a well timed keystroke.

try install the linux inside windows 7, follow the instruction how to install linux over windows 7, me i have windows xp, then i installed ubuntu 10.04, i just install inside windows so far so good....i have dual os now..