Wrong way round Legslip. First off install the 120Gb disk as the slave and transfer all the data (My Docs. Pictures etc) to it. (Put it in a folder called Original Data or something like that.
Then do a factory reset which will wipe all the original hard drive and data, which you`ve transferred anyway, and immediately re-install all the XP service packs up to SP3 plus any optional one`s you choose and the 110 updates since SP3.
click here and select a different location for all the data which will be the 120GB drive. Once that is done move all the old data to those folder as appropriate.
Theory: The old 40 Gb drive is perfectly sufficient to run all the system files but not for all the data. Data is now safe on the 120Gb drive and if ever that original drive fails you simply replace it - data safe on the other drive.