|"Assuming your computer BIOS DOES support large hard drives....."|
Generally, if the system or the mboard was made in 2001 or later, it does.
Look in your bios Setup to see if it recognizes the full size of the drive.
The drive detection on the controller the drive is connected to should be set to Auto by the Auto or LBA method.
Drive manufacturers rate the size using a decimal size (e.g. 1,000,000,000 bytes per gb)- your computer's bios and Windows states the size as a binary size, which is always smaller than the manufacturer's decimal size. (1,024 bytes/kb, 1,024kb/mb, 1,024mb/gb; 1,073,741,824 bytes /gb)
If it's listed in mb, there are 1,024mb per gb.
A 250gb drive is seen by the bios as a about a 232.8gb (or 238,148mb) drive.
Windows uses up some more space when the drive has been partitioned and formatted, so it's smaller than that in Windows.
The XP CD must have at least SP1 updates included in order for XP to be able to recognize the full size of a hard drive or a hard drive partition larger than 128gb (in Windows and in your bios; = 137gb manufacturer's size).
Even if you install SP1 or SP2 or SP3 updates after Setup has run, you can't make the size of the hard drive partition(s) larger in XP itself without deleting the partition(s) and the data on them first.
You can, however, use third party programs, generically called partition manipulation programs, such as Partition Magic, or freeware programs, to make the partition(s) larger without losing the data on them, but you are advised to backup your data before doing so.
The original version (Gold) XP CD, and all the original XP CDs with SP1 updates included that I've seen, have no printing on them that indicates SPx updates are included. If SP2 or SP3 updates are included that's printed on the CD.
XP MCE 2005 has SP2 updates built in; earlier versions do not.
If your XP CD does not have at least SP1 updates included, and you have hard drives larger than 128gb (in Windows; = 137gb manufacturer's size), you can burn a slipstreamed CD that has the contents of both the original Windows CD and the SP1 or SP2 updates
Slipstreamed Windows XP CD Using SP2
Directions for using Roxio or Nero.
(NOTE that if you use Nero, you will need additional info to make sure the resulting burned CD is bootable, due to possible bugs in the Nero version - let me know if you want to use Nero).
You can also make a slipstreamed CD that has SP3 updates built in, which will save you some time after Setup has run.
If your original Windows CD is one without any SP updates, it is possible to make a slipstreamed CD including just the SP3 updates, but it may be better to upgrade it to it having SP2 updates first, then upgrade it to having SP3 updates, then burn the CD.
(Otherwise - once the original XP version with no SP updates included has been installed on the hard drive, you must run the SP2 updates installation, then the SP3 updates installation, but apparently that doesn't apply to making a slipstreamed CD from the contents of the original CD).