Aside from what is already mentioned, if you are installing a version of XP that is not service pack 1 (sp1) or later then the OS can't see it:
How to enable 48-bit Logical Block Addressing support"]Windows XP does not support 48-bit LBA support unless you are running Windows XP SP1. If you want to use 48-bit LBA support, you must apply Windows XP SP1 or later. Windows XP Media Center Edition and Windows XP Tablet PC Edition already include SP1.
You can simple upgrade to SP2 and create new partitions or if you have to have a 250gb c: drive then you can create an SP2 install disk by slipstreaming your current XP cd with the network installer of SP2