Absolutely. If your copy of Windows XP is prior to SP2 then the partition will only show up to 131GB - this then goes down to 127GB when you go into Windows itself. It seems to be a bug in Windows XP where the setup program cannot address more than 131GB of Hard Disk, hence the reason you have this odd problem. I had an 160GB Hard Disk when I had this problem.
When you installed SP2 onto your Windows XP setup, go to Control Panel -> Administrative Tools -> Computer Management. Then on the left hand pane click on Disk Management and you will see Disk 0 will have the 127GB NTFS partition and then the remainder after it will be Marked Unpartitioned Space. Right click that and then choose the option to Create Partition and follow the wizard to format the partition ready for use - this space will then appear under My Computer as the next availible drive letter - if you wish you could label the volume "SPARE DISK" so as you know what it corresponds to.
Forgive my directions on the Computer Management - my memory is a little rusty as it's been a while since I did that procedure. Under Windows XP with SP2 integrated as part of the setup procedure, MCE 2005 and Vista the problem didn't exist.
Just leave the IDE Access Mode to whichever one works when installing Windows XP.