To use a Partition (volume) over 128 GB (by Microsoft's way of counting) you need what's called "48-bit LBA Support" in the drive, in its controller, and in the Operating System. Obviously any drive over that size must have been designed with this feature. Most controllers since about 2000, and ALL SATA systems, have this support. Windows XP Original version did NOT, but it was included with SP1 and later.
If you Partition (and Format) a hard drive using original XP (and this includes installing from the Windows Install Disk, 'cause that's the very first operation done), you do NOT have the 48-bit LBA support in place at the time the Partition operation is done. You can add the feature by updating your Windows after installation - I recommend anyone doing that now go for the latest SP3. But that will not change the size of your existing Partition. In fact, Windows itself will refuse to change the size of the BOOT Partition, although it can change sizes on other partitions. If you are in this situation and really want to expand your 128 GB boot partition, you can do it with other 3rd-party software like Partition Magic.
So, if you installed original XP and then updated it to SP1, 2 or 3, you have one boot Partition called C: on your hard drive, plus a whole bunch of Unallocated Space. To see it, use Disk Manager and look at the Lower Right panel (it scrolls, don't forget). If you RIGHT-click on this space you can choose operations, like creating a new Partition (which now can be larger than 128 GB since you have 48-bit LBA added in) and Formatting it. That way you can use all your disk's space, but not in one single large volume. You will have a C: drive to boot from at about 128 GB, and one or more additional drives with their own letter names for data storage.
If you really want to have only one large C: drive, there are three choices.
1. Go the route above - use original XP to install to a 128 GB C: partition. Do NOT create any other partitions. Buy and use Partition Magic or some other 3rd party utility which can expand your C: drive to include all the remaining space available.
2. Buy a newer version of XP Install Disk (usually with SP2 included) which can create a boot partition over 128 GB, up to the full size of your hard drive, at the time of installation. Use it to do a new install. Update the installation with all the latest upgrades.
3. Starting from your original version licensed XP Install disk, read up on the 'net a process called Slipstreaming. This is a perfectly legal way to update your original version of XP to the latest, including SP3 etc., and ultimately make on your own CD burner a new XP Install Disk with all the new capabilities built in, just as if you had gone out and bought such an Install Disk. Use this disk to do a brand new installation of XP, deleting first all prior traces and starting as if your hard disk were new and empty. Just like any other installation process, this destroys any info on your HDD, so make good backups before proceeding!
If your situation is that you have XP installed in a 128 GB C: Partition with a bunch of Unallocated Space on the rest of the disk, and you do NOT want to start fresh with a brand new installation and then copying all your applications, data, etc from a good backup, probably the best route is the third party software tools that will allow you to expand C: to include Unallocated Space. If this is your choice, remember that it is always prudent to have at least one (Verified GOOD!) backup of all your existing data before using any tool that changes critical drive information.