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I thought from the last thread you had got rid of the error message.
XP cannot format a partition larger than 32GB in FAT32 file system, even though it can read and write to such a partition without any problem. Just a restriction imposed by Microsoft, probably encouraging people to use NTFS.
If you must use FAT32, you'll have to do it with Fdisk using a 98 boot floppy.
A hard disk manufacturer's 160GB means 160,000,000,000 Bytes, whereas Windows uses the binary system, so that Windows' GB means 1024 x 1024 x 1024 Bytes.
IBM's 160GB should roughly translate into Windows' 149GB.
Right click your new drive, Properties, and see what it says about its capacity, both in Bytes, and in GB.