When the partition table gets corrupted then the HD size can report as
anything - I've seen 80Gb drives with a phantom 500Gb partition

Yes Ubuntu 6 is way old but make sure you use GParted from a Live CD
to erase all partitions before you start to install.

When you format the drive though, doesnt the partition table reset?

No. That is why you can format just one partition and leave the others
intact.

So, if after Ive formatted the whole drive and it still says its bigger
than it should be - that one should go in the trash?

Well, I would use one of the disk utilities to delete all the partitions
first. Then either create a single partition or multiple partitions and
see if things improve. A good free tool to do this with is EaseUs Home
edition, which you can download at http://www.partition-tool.com/

I would also run HDAT2 from Hirens boot CD and see what it says about
the drive. You can download a zip file, which will make an .iso file,
which will make a bootable CD at
www.hirensbootcd.org/files/Hirens.BootCD.14.1.zip