I ran into this same problem. It seems that the original
XP installer (for the Pro edition, in my case) cannot see
more than 130GB on a hard drive. I took a boot disk from
Windows 98SE and FDISKed the drive to FAT32 using all
available space. I then formatted the drive using
FORMAT.com. FORMAT will reported to me that the drive
was, and I quote, "25,11.23" GB, but the drive was
formatted to the correct size (in this case, 160GB).
When I ran the XP installer after that, it still thought
the drive had only 130GB but reported the correct
partition size when I gave it a partition to use. After
that, everything seemed fine.
Rory