You'll have to upgrade to Service Pack 1 or Service Pack 2 in order to make use of the full drive size. You DO NOT need XP 64-bit, and that Dell tech support guy is wrong. You're running into a 137GB hard drive size barrier. You're hardware looks like it supports it, but XP didn't come out with support for these larger hard drives when it was released. Among other things, Service Pack 1 added support for large hard drives. You can also get Service Pack 2 for even more support. You do not need to upgrade to SP 1 then SP2, as service packs are cumulative.
Service Packs are free, as well.

Install XP Pro, then go the Microsoft's site and upgrade to SP2.
Now, right click on My Computer-->Manage. Go to Disk Management so you can see all the drives that are hooked up to the system. Now you can go ahead and create more partitions.

If you want to have XP support the full size of the hard drive off the bat, you'll have to slipstream SP 1 or 2 and burn the slipstreamed copy onto disc. Off-hand I don't have a link on how to do this, but run a Google search for it. I don't know how confident you are in doing something like this, but the process is more than a few small steps.