Debian distro.

I just formatted my new 320 GB second drive with ext3 and mounted it. When I check properties it incorrectly reports the size as 278.5 GB.

Did I do something wrong?

Should I be formatting with a different format?

What you did wrong was believe a sales blurb.
What they sold you was 320*(1000*1000*1000)
What you got in computing terms was that number divided by 1024**3 - which equals 298 Gig. That's the true number before you start.
Ext3 reserves 5%, so you're down to around 283 Gig - and from that you lose a little with the journal and filesystem overhead.

There should be plenty of threads of other people complaining about similar.

The 5% is not from the journal. The 5% is root reserved. User files can not use more than 95% of the space because 5% is reserved for root. EXT3 is ok for small capacity, but the default reserve hurts large capacity drives. In your case it is taking away about 15 GB. You can change the root reserved to 1% or to 0%. If you are going to use the space for small files, it is ok to use EXT3 because they do not need high throughput. If you are going to use the space for files that need high throughput and/or the count of files in a directory will reach to millions, I suggest XFS.

Thank you guys.
It was very helpfull.

Is there an option for recovery Files in XFS?
If i use ext3 for large files, what will be the problem?

No problem - ext3 is a mature and robust filesystem. I use nothing else personally.
But then i tend to limit my partitions to around 80 Gig each so I can back them up to my 100 Gig Lacie USB externals - personal choice.

Ext3 is, as syg00 stated, tried and true.

I probably wouldn't use XFS unless it's for a MythTV box or something else that needs a really responsive disk system (for playing videos and deleting/moving them concurrently)...

There's some good information on it at the Wikipedia article: http://en.wikipedia.org/wiki/Xfs