i believe you are confusing RAM (memory) with hard drive space....you should include a screen shot of the drive ( ctrl+alt+prnt scrn)....it could be 137GB used or 137Gb left on the drive out of 500....ps- did you order it online, you may have gotten ripped off)
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xerogx has it right - its a bug with either the firmware on the bios, the drive controller, or a windows fat-32 limitation.
Go into the bios, (delete, or f8 or f1 when you reboot) and find the ide drive listing - it will tell you what 'it' sees. If the computer is too old to support more than 137 gigs you may be somewhat out of luck, no matter what file system.
Try formatting the drive to ntfs since you're in windows.
this is a common problem with some installations of XP. the problem is with the way it address the hard drive space. Maximum pc did a great article on this a few months ago.