Seems a little overpriced, but not grotesquely.
Any 50 pin scsi hard drive will work, but some are easier to work with than others because of the software requirements for formatting them, and working with them in the long run. An Apple OEM unit would be the easiest to work with (they all have a logo or text to that effect on them), because they had Apple Roms that make formatting easier, using the standard Apple utilities supplied with System software. However, the alternatives are not terribly stretching, so long as you are able somehow to download software and make Mac floppies. There is in particular a patched/hacked version of Apple's HD Setup readily available on the web that will format any period scsi drive, which then will work just like an OEM one. Or you can hack the utility yourself with ResEdit.
1 gb is plenty for most any usage you are likely to dream up for an lc575. Internal or external does not matter speed-wise, but for compactness, I'd probably suggest putting it in the machine, and keeping the smaller one that came with the machine, assuming one did come with it, as an emergency drive. You could temporarily pop it on the scsi chain and copy System etc. across for safe keeping. This could be useful in future, because of the failure rate of old scsi drives these days.
I have external drive housings, cabling galore, and terminators if you are hard pressed to find such things locally, but shipping is expensive from Canada.