Does Bootcamp modify contents of the USB used? If I'm planning to install Windows 8 using Bootcamp, will it modify the contents of the USB I use without my permission? I just plan to download the ISO and place it in a folder inside the USB/EHD.

I'm debating whether I should use my External Hard Drive which has some important data, or if I should go out and buy a USB stick for this.
When using a USB device, whether a stick or a external HDD, Bootcamp will format the device before using it for the Windows installer image. 

Thus, you'll need to use a device that you don't mind getting erased. 

Simply copying the .iso file to a USB device won't work. Also, keep in mind that the Bootcamp app also adds a bunch of Apple-provided drivers to the device, as well as help you prepare a partition for Windows, among other things.