Well, testicles in all mammals "externalize" in order to keep the sperm at the optimal temperature. They are healthiest when in the scrotum, and can still cause problems when pressed down against the skin.
I have seen inguinal testes become cancerous. These males regularly have fertility problems, and/or produce pups with non-descending testicles. Even dogs that have had their testicles successfully "pulled down" will produce retaining offspring.
Here are some further veterinary opinions on this subject:
http://www.2ndchance.info/cryptorchid.htm
http://www.beaconforhealth.org/Cryptorchidism.htm
http://www.lbah.com/canine/dog_neuter.html
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