the method of sizing a harddrive is a constant argument believe me, makers mark then digitaly, and then it goes into a computer and shrinks.
the reasons why your drive is showing low could be because of several things,
the FAT File Allocation Table versions can only work to there limited values, Fat, Fat16, Fat32,Ntfs and each of them have a variety of versions each.
the BIOS on the an older motherboard may need its BIOS chip updated to enable it to recognize the larger harddrive dimensions,
the format tool that you used could be an old version which does not recognize or is able to format a drive larger than 127gb
the operating system format tool could be an old version
was there a floppy disk from the drive manufacturer with the hard drive, if so did you use that to format the new drive?
download SwissKnife from here click here
and then try and format the full drive.
find out what motherboard is installed in the computer and check the manufacturers web site for an update to the BIOS,