It's not exactly that nothing is allowed to be saved to internal memory. More accurate to say the save data is chained to the game download. If the game is on internal, so is its save data. If the game is on USB, so is the save data. Downloaded games seem to default to internal storage as long as there's room there for them, and I haven't had the eShop give me the choice of downloading to USB yet because I've kept enough free space on internal.

When you select a game in the data management interface, it shows you all files for that game (typically the main install, the save file, and an update file) and gives you the option to transfer all files or delete. If you select a particular file, like the save data, the transfer option disappears and only the delete option remains. If there's a way to pick and choose which data gets transferred, I haven't found it.

This is likely a design decision made by Nintendo to prevent awkward questions. Like if it finds a save file on internal and a save file on USB, which one does it load when the game launches? Personally, I'm with you and I'd rather Nintendo had simply chosen to keep all save data on internal while providing an archive feature for USB devices.

it is somewhat frusrating, it coudl be cause its a USB3.o hdd, however once I have gone through those menus it runs like a dream and has no issues that other peopel describe like freezing etc..

Hence why I posted this thread up, because I reackon this probably happens with other 2.5inch drive and peopel jsut assume it does not work. As it was like 2am my time when I posted this I had no chance to email Nintendo about it. I am hoping it is a bug they can fix and magically their compadibilty list skyrockets lol. Because why would it recognise my hdd once I have gone through those steps? I even powered on my Wii U and left it for 20mins to see if it would pick it up, and it did not. As soon as I went through those steps, bingo it did. The other interesting part is that it spins fine, as the LED light on the hdd stays on without drop outs. So I know the hdd isn't sucking too much juice.

Got this a few years ago, works fine
http://www.newegg.com/Product/Product.aspx?Item=22-324-036&SortField=0&SummaryType=0&Pagesize=10&PurchaseMark=&SelectedRating=-1&VideoOnlyMark=False&VendorMark=&IsFeedbackTab=true&Keywords=%28keywords%29&Page=2#scrollFullInfo

Okay, did a little testing of load times for all my games. Time is seconds from when icon is touched to when "Press Start" is displayed on screen, except for Monster Hunter, which I timed to the intro video since you're just a button press from the menu at that point. Here it is:

Title  Time

So, fastest game is a disc, slowest game is a disc, and my particular hard drive is sometimes faster, sometimes slower than internal flash. Hope that clears things up. :-p

Edit: Sorry about formatting. Looked a lot nicer before I hit the post button, I swear. 

Thanks for all the work! Looks like HDD or internal storage doesn't make any difference. Must...resist...urge.... to download.... Monster Hunter... argh!