Harddrive capacity error
It seems there are hidden partitions on your drive. When you install OS X, it creates Recovery Partitions, which seem to be taking the rest of your available disk space.

You could try running Disk Utility from the OS X install DVD/USB and try to erase ALL partitions. If you don't have the installer disk, you can boot into Internet Recovery mode by holding Command + Option + R at boot chime.

Alternatively, if you have a Windows install DVD/USB, you could boot into Windows installation, press shift+F10 and use DiskPart to format the entire drive. Type the following commands into Command Prompt:

diskpart
list disk
select disk n (n=the number of to be formatted drive)
clean
create partition primary
format fs=fat32 quick
exit
exit


If fat32 doesn't work, redo above steps and try 'format fs=ntfs quick' at last step.