|You should list the complete specs of the system you're working with.|
1. WinME doesn't support NTFS so if that's the OS you plan on installing, you must format as FAT32.
2. Microsoft's formatting tool only supports FAT32 partitions up to 32GB. If you want to format the entire 250GB as FAT32, you will need to use Western Digital's formatting tool. If the CD didn't come with the new HDD, go to the WDC website & download a copy.
3. 256MB RAM isn't enough memory to run WinXP decently & it sure as heck isn't enough for Vista or Win7. You need to select an OS that's capable of being run on your hardware. If you want to run XP, I suggest you add more RAM - at least 512MB but 1GB (or more) would be better.
4. if you have no plans to upgrade any hardware, you may want to consider trying one of the lighter weight Linux distros. Better to run a modern version of Linux than a 10+ yr old version of Windows that never was very good to begin with.