The 128 GB limit is not in the drive. It is the limit of addressable space using the older 28-bit LBA system, which is what Win 2K did. So when that HDD was originally Partitioned and Formatted under Win 2K, it was only able to Create a Partition of that size. I fully expect this means that, although the HDD is 500 GB, it contains one 128 GB Partition you have been using, and a whole bunch of Unallocated Space that has never been used.
The newer systems use 48-bit LBA, and support for that in the Windows OS's first became available with SP1 of Win XP. So Vista etc. CAN use a HDD larger, and create and manage Partitions 'way bigger than any HDD today or into the near future.
Now, how can you get to use all of that 500 GB unit? Several options, depending on what you choose.
1. Are you willing to completely wipe out all of the data on that drive and start with a blank drive? This could sub-divide into two paths. If you don't need any of its info, you can wipe it and set it up a new way. If you do want to save the data, one option is to back up all its contents to a different unit, verify that the backup is good, and then proceed like you do not want to save anything on the drive. If you are not getting rid of its contents, see steps 3-6 below.
2. Now, supposing that you are not trying to save any data anymore, the next decision is: is it going to be your boot device that you install Win Vista on, or is it going to be just a data storage device after you have booted from a different drive? IF it is to be your boot unit with the OS installed, I suggest you install it in your machine and UN-install all other hard drive units. (This will avoid allowing Windows to put an extra set of backup files on a second drive, which then must ALWAYS be in your machine to boot.) Put your OS Install CD in the optical drive and boot up. Early in the operation the Install sequence ought to show you in its menus a place where you can Delete all existing Partitions on the HDD available. Do that. Then you proceed with a normal OS Install. Just make sure that, when you are offered a chance to confirm its setup choices, the Partition it plans to Create for this Installation is ALL of your HDD, and not a smaller portion. Once you have the new Windows installed you can shut down and re-connect any other HDD's etc you want. When you re-boot they all should show up in addition to your boot unit. If you saved old data in a backup set somewhere, you can plan how and where to restore it.
NOTE: when you do this, Applications software you had on the old drive will all need to be re-installed completely on the full drive under the new OS. The Installation process for apps these days makes important entries into the Windows Registry, and this cannot be done by merely copying old files. Data files do NOT have this issue - it's the app software that needs re-installs.
3. On the other hand, if you want to re-use that 500 GB unit only as one large drive for data storage, and you already have another drive with Vista installed and in use as your boot device, the route is a little different. Shut down your machine and install the 500 GB unit. Boot into Windows normally. You will use Disk Management to re-Partition that drive. Click on Start at bottom left, then RIGHT-click on My Computer and, in the mini-menu, choose Manage. Expand its left list if necessary and click on Disk Management. The right hand portion will show an upper and a lower pane, each scrolling so you can see all it contains. The upper right pane shows you all the drives Windows can use now. Concentrate on the LOWER RIGHT pane which shows you all the hardware devices available. In it each HDD is represented by one horizontal box with a small label block at its left end showing a disk unit number like "Disk 3", a disk type, a size (should be about 465 GB for this "500 GB" old unit, and a status. To the right of that is (are) one or more sub-blocks, each representing one Partition on that HDD unit that is in use now as a "drive". It will have further info - a Volume Name given to is when it was Formatted, a letter name like "E:" assigned by Windows, a Partition size (128 GB I expect), a File System - might be NTFS or FAT32, depending on how it was set up - and a status. If you have only that one Partition already established on this unit, to its right will be more space simply labeled "Unallocated Space". Choice time, once again (next two steps).
4. IF you want to KEEP the old 128 GB Partition you can simply Create a second Partition out of the Unallocated Space. It will be treated by Windows as a completely separate "drive" with its own letter name and fully usable. To do this, RIGHT-click on the Unallocated Space and choose to Create a Partition. It should be a Primary Partition (not extended), it does NOT need to be made bootable, and you probably want to set its size to the maximum possible (about 335 GB). For Formatting options, I recommend you use NTFS File System and a Full Format (will take hours, but good precaution on an older drive). When the job is finished you can back out and reboot, and your new drive will be there in addition to your boot drive and the original Partition on the 500 GB unit.
5. INSTEAD if you want to wipe out all the contents of the old drive and make just ONE Partition that uses ALL of the 500 GB unit as one big chunk (you DO have your data backed safely if you needed it, RIGHT?), you can RIGHT-click on the existing 128 GB Partition and choose to Delete it. When that's done all of the disk will be Unallocated. Now you can do as above - RIGHT-click on the Unallocated Space and Create a Primary Partition that is not bootable and uses up ALL of the HDD's space, etc.
6. There MAY be a third alternative. I'm not using Vista so I'm not sure which way this goes, but mfenn pointed to it. Assuming that all the space other than the first Partition is already Unallocated Space, without Deleting the existing 128 GB Partition, you may be able to RIGHT-click on it and choose to Expand that Partition to add in all or part of the Unallocated Space. This has a limit, of course - you cannot change the File System already installed in that 128 GB Partition. So IF it is FAT32 and you wanted to change to the more modern NTFS, this is not the route for you. The other point I'm not sure about is this: Some Windows (maybe Vista???) will NOT allow you to Expand or otherwise alter the size of an existing Partition that contains an Operating System and / or Swap File, which I expect ARE on your old drive. So You may or may not be able to do the Expand option.
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