Lots of the info above is misleading, so let's start fresh. Read ALL of this - I have not put everything in exact order of which to do when.
Your task is certainly do-able. You've spotted one of the problems - the case only appears to have space for one HDD. But there is a solution. You WILL need to have both the old and new HDD units connected at the same time, BUT the new one does NOT need to be permanently mounted inside the case for this. You can do this with the case open and wires connected to your new 1TB unit, as long as it is on a stable surface for a while and that surface is non-conducting. So just place a thin sheet of plastic, dry wood or dry paper under it.
I am assuming your old and new drives both are SATA type. If you don't know how to tell SATA from IDE, look at the connectors on the back edge of the drives. An IDE unit has a power connector on the right with 4 pins in a straight line. Next to it are usually two rows of 4 pins for setting a jumper. To the left is a large connector with two rows of 20 pins each. On the other hand, a SATA unit has a power connector that has a plastic tongue holding 15 printed metal connection strips on one side, and a data connector like that but with only 7 connection strips on it. On both these connectors, one end of the plastic tongue is bent down to make sure you plug in the cable correctly.
The wires you must connect are two in each case. Assuming you have SATA, find a wide power connector on the cabling coming from the power supply box. If there isn't one available, you can get an adapter from any computer parts shop that will convert a PSU's 4-pin Molex output connector to a SATA HDD power connector, and I'll bet there is at least one unused 4-pin Molex (4 HOLES on a straight line, about ¾" wide) power connector available. OR, you could temporarily use the power connector for the SATA optical drive.
Then you'll need a spare SATA data cable to connect from the HDD's data port to one of the motherboard's SATA ports. Although you probably have the old HDD and an optical drive connected to mobo SATA ports, there are likely a couple more unused. If not, you can always disconnect the optical drive temporarily and connect the new HDD there for the cloning operation to come.
OK, so you can connect both drives to the motherboard and temporarily support the new unit, even if it's not bolted in. The key step here is called Cloning the HDD. Cloning means making an exact and complete copy of the old HDD to the new one so that EVERYTHING has been copied in one operation AND key files have been placed exactly where you need them. When it is done, the new HDD can completely replace the old one. To do cloning, you need a utility. Fortunately, the maker of your new 1TB unit, WD, has a free utility for this you can download from their website. It is called Acronis True Image WD Edition, and it does a LOT of tasks for you beyond just cloning, although that is today's focus. Download it and install it on your old HDD. Also be sure to get the manual document that should come with it and READ it - especially the chapter on how to make a clone.
Once you've done that you're ready to get to work. With the software installed and both old and new HDD units connected, boot up. Run the Acronis True Image WD Edition software and choose to make a clone. Be VERY SURE that you specify that the SOURCE drive is your old 160 GB unit, and the DESTINATION drive is the new 1TB unit. It will offer you a recommended set of parameters for the cloning job and ask for your approval. Do NOT approve! I expect it will suggest that the clone copy on the new drive will be in a Partition of the SAME size as your old HDD, whereas I bet you want the new HDD to be all one big drive of nearly 1TB. Use the menu system to tell it to change the size of the new Destination Partition or Drive to the full HDD size - roughly 930 GB, I expect. Pretty much all the other settings are OK. When you're satisfied, THEN approve them and start the job. Assuming you let it do a Full Format, this will take several hours for it to test ALL of the new drive before starting the copy job, so find something else to do while you wait.
When the cloning is finished, back out of that software and shut down. Now, disconnect and remove the old drive, leaving its smaller (7 wire) data cable attached to the mobo. Disconnect the new HDD and mount it in place of the old one, connecting the power and data cables to it. If you had to temporarily disconnect your optical drive, reconnect that. At this point the inside of your machine should look almost exactly like it did before. The new 1TB unit will have EVERYTHING your old one did, and you can boot up from it. Moreover, since you connected it to the SAME mobo SATA port that the old one was on, your mobo WILL know to boot from that unit.
Now, here's the secret to your headline question. When you boot up your machine, automatically the name C: is assigned to the drive you just booted from! You can't even change that. So your machine will look and behave exactly like it always did with one change: your C: drive will now be HUGE!
What to do with that old HDD? Well, first of all, store it on a shelf for a while until you are convinced the whole process worked, because that 160 GB unit is a complete backup copy of your system up to the cloning step. But when you're sure you don't need that backup copy any more, you can choose. Some would throw it away on the belief that any HDD that old is bound to start failing. Others would decide it is still OK and buy an enclosure to mount it in, making it into an external drive. If you do that, you can use Windows' built-in utility Disk Management OR that Acronis True Image WD Edition software to Delete its old Partition(s) and start fresh with the drive by then Creating a New Simple Volume on it to store data on.
By the way, I skipped a possible wrinkle there. When you start up the cloning process and it tells you about recommended settings, if it says there are TWO (or more) Partitions to be copied and wants to split up your DESTINATION unit the way the old one was, stop right there. If you see that, back out of the cloning software and post here what is said. I have a different recommendation for how to clone a multi-Partition drive.
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