/boot doesn't need much space. You should be fine with 200mb.
You should be able to use the full hard drive for the / partition (except the /boot part) and I don't know what is wrong, and I suspect it was not formated correctly, but I believe it is a good idea to separate the data from the system anyway.
I believe windows XP detects that your BIOS doesn't handle large hard drives and installs a boot loader accordingly. Ubuntu doesn't seem to handle older BIOS automatically.