Then you must have installed XP using only SP1. Cause XP SP2 and beyond have the patch to allow the system to use drives larger than 137GB. That was a limit imposed upon XP pre-SP2.
So the system should show a unallocated space drive in the disk management.
Start>Right click My Computer>Manage
there select on the left side Disk Management. If it shows unpartition or unallocated space you can just right click and create a new partition for Win7.