I am saying that you cannot change your existing HDD to be a bigger or smaller capacity. To do so you would have to physically pull it apart, change the platters and internals, then put it back together again. And even then it likely wont work, since HDD's have to be very finely tuned to work.
What I was saying you do is get another HDD to put in the system. That way you can keep your existing 160GB drive, but have more storage. This also means you don't have to re-install windows, get drivers again, install all your programs or backup any of your old data.
There shouldnt be any problem with compatibility software wise, and hardware wise the SATA card I mentioned will fix that.
Are you sure the HDD you have is SATA? From images I'm seeing of your motherboard, there are no SATA ports to use.
http://www.redplanettrading.com/ebay/motherboards/c28705-407/c28705-407-overview-800.jpg
Unless you have a card similar to what I suggested above.