Is this a brand new hard drive or an old one that Windows used to read all 300GB? Go to Control Panel --> Administrative Tools --> Computer Management. Pick Storage --> Disk Management (Local). Select your 300 GB drive and you might find that a portion of it needs to be formatted/partitioned. I know that some early versions of XP (like when doing a fresh install) won't read the full capacity of a hard drive, which is why slipstreamed copies are recommended.

If you're hoping for one big unpartitioned drive, let me know some more details of your situation (fresh install of XP?), otherwise use Computer Management to setup the drive. Some large hard drive manufacturers like Seagate offer free downloads from their website to setup large capacity drives on Windows.

 

Is that Windows ME? You will need Windows 2000 SP3 or Windows XP SP1 to have support for 48-bit LBA which will enable support for drives larger than 137 GB.

There is likely nothing wrong with the drive itself.