The label on the top of the drive will tell you how to set the jumpers. Your old drive you leave alone, the new drive needs one jumper across the 'slave' pins. Takes about 10 seconds after you pull the drive out. Detailed instructions with photos are available on the drive manufacturers website.

Disk Utility will handle all your partitioning and formatting, including dealing with the excess space. In short, you do the normal stuff and the excess just disappears.

Your old drive is sick and dying. Install a clean system on the new drive, copy any extra applications over to it in the Finder and copy your old Users folder over the new one. Be sure to do this last step while logged into the new system, and you will have to turn permissions off on the old drive.

Remove your old drive and you will have an attractive paperweight for your desk.

Thank you all for your help. Like I said in my last post, I bought a 80 gig HD (western digital) yesterday. I first copied all the information from my 160 gig drive to the new 80 gig drive. Then, I used the carbon copy cloner (like yellow said) to copy all files from my old original 10 gig to the 160 gig drive. I took out the 10, replaced it with the 160 (master), and made the 80 gig the slave drive. Thank you all for all of your help. I now sort-of understand how hard drives work. :D I can impress my friends with my new hard drive lingo!!! I'm kidding.

Software/Firmware for large capacity drives
 

There is a utility from a company called Intech that will allow older macs running OS 10.2.x and higher to use all of the HD space on an internal drive over 128GB

search Intech

I've been using Speedtools to use the remaining 62GB of my 200GB drive on my B/W from OS 9 only. It's pleasing to see that they finally developed a Kernel Extension to allow OS X to access and use this partition. Do note though, you must partition the drive! Since the extension doesn't load until after the Kernel boots, anything above 128GB won't be accessible until then. Also, if you boot a CD or other drive that doesn't have the extension, a partition map indicating a partition over the 128GB limit will appear wrong and data errors will occur.

The site above does have a tech note about this, but it's a little flawed IMO. They suggest reformatting a drive (of course, backing up first) and creating one partition of 127.99GB and the remainder to a second partition. When I setup my 200GB drive, what I did was format it normally with Disk Utility creating a partition map as if the drive were only 137GB (128GB based on 1024). Then I booted into OS 9, updated the driver with Speedtools, enabling the full capacity. Then I just added the remaining space to an OS 9 only partition. This guarantees that the first partition will always work without the extension at it's maximum capacity.

What, I'm saying is that if you already have a drive >137GB, formated at the current limit, install the Speedtools from OS 9 first to fix the partition table. Then add the extension in X. You should not need to reformat. Note: This size limit only exists on Macs prior to the Mirrored Door Mac, so they are capable of booting into OS 9.

For what it's worth, I'm installing a third HD on my Sawtooth. It's a new pulled Seagate 160 and I'll install it on a Sonnet Tempo ATA 133 PCI card which allows larger hard drives to be used. Plus you can set up multiple Masters rather than Master/Slave arrangements.

Here's the Sonnet Tempo info...
http://www.sonnettech.com/product/tempo_ata133.html

Here's the size barrier info...
http://www.sonnettech.com/product/size_limits.html

Well… Sort of… You are still only allow one Master per port (cable) and any second drive on the port would have to be set to Slave. That's just the way ATA works…