So...basically, this is your slave drive:
Primary Partition #1: 26-28 GB aprox. Windows - Fat32
Primary Partition #2: 126 GB aprox. Linux
Extended Partition: 80 GB aprox.
Logical Partition #3: 78 GB aprox. Windows - Fat32
Logical Partition #4: 1 Gb aprox. Swap
For the method you use, (use the largest continuous free space) it seems that, indeed, the installer took out an amount of 127 GB aprox. to use for root system ( / ) and swap, which is not an error of the installer, the error was yours he he. Even when, from the picture of the guide you followed seems to be selected 'hda' in your case I think that you selected sdb (slave drive) and that's why the installer use that amount of space.
But is not a big problem actually, you could resize the ubuntu partition (126 GB) using
gparted's livecd, to something like 20 GB if that's what you want, then create a new Fat32 primary or logical partition in the 106 GB 'unallocated space' and that's it.
Your drive could end in something like this:
Primary Partition #1: 26-28 GB aprox. Windows - Fat32
Primary Partition #2: 20 GB Linux
Primary Partition #5: 106 GB Windows - Fat32
Extended Partition: 80 GB aprox.
Logical Partition #3: 78 GB aprox. Windows - Fat32
Logical Partition #4: 1 Gb aprox. Swap
or
Primary Partition #1: 26-28 GB aprox. Windows - Fat32
Primary Partition #2: 20 GB Linux
Extended Partition: 80 GB aprox.
Logical Partition #3: 78 GB aprox. Windows - Fat32
Logical Partition #4: 1 Gb aprox. Swap
Logical Partition #5: 106 GB Windows - Fat32
Using gparted is straight forward so I don't think that you'll have to much trouble to use it, read the
documentation about resizing partitions, you should be fine.
Regards