William

Did you use Fdisk to format the hard drive? My guess is that you did not answer "Yes" to the question "Do you wish to enable large disk support? "

How to Use the Fdisk Tool and the Format Tool to Partition or Repartition a Hard Disk
http://support.microsoft.com/default.aspx?scid=kb;en-us;255867&Product=w98

You will need to reformat the disk. Unfortunately this will result in the loss of the contents of the drive so backup any data files you wish to keep. You could look at a third party utility which allows for resizing etc without data loss but they still recommend backing up data to protect against things not going as planned.

Buy Partition Magic:
http://www.powerquest.com/partitionmagic/

or Bootit NG, www.bootitng.com -- 30-days fully functional shareware.

I would consider having two partitions. One 8gb and the other 32 gb. It will make utilisation of disk space more efficient avoid 32 kb cluster sizes. Place the operating system in the smaller partition.

Description of Default Cluster Sizes for FAT32 File System
http://support.microsoft.com/default.aspx?scid=kb;en-us;192322&Product=w98