Should you want to connect to the internet from your Windows XP Laptop be very aware that Windows XP Automatic Update is enabled by default.
This can download many MBs in the background, which is very expensive for GPRS modems - £3/MB or more depending upon your network.
And browsing is best done with images turned OFF!
Go into: Control Panel > Administrative Tools > Computer Management and click on the unformatted external HDD, then Format.
You may not be able to create paritions greater than 120GB (possibly due to IDE limitations rather than limitations with NTFS). In this case use a Partitioning tool to split your HDD in two.