The ATA-6 spec. for 48-bit LBA (allowing 128 PetaBytes!!!) has been around since 2002, so I doubt that the 2005 BIOS is still enforcing a 137GB limit - especially as Dell shipped it with a 160GB disk.
However, Windows XP pre-SP1 did NOT support 48-Bit LBA, so if a re-install of XP was at a pre-SP1 level, that would be problematic.
There are many possible reasons for the problems, ranging from overheating to BIOS corruption or misconfiguration to physical damage or loose connection(s).
SD