I can only guess that you bought a 120GB HDD from eBay? Maybe these drives are "compatible", not genuine. You can recognize it by checking under the box for the Microsoft's security seal. If that's the case (the seal missing) then you must follow the hddhckr method, and using a proper 120GB .bin file for the HDD. Note that you must tear apart the case to take out the HDD from inside to do this. And when you take off the HDD, make sure it is a real 120GB drive indeed, not a 20GB (In that case you were fooled).
P.S. Use the Microsoft's genuine transfer DVD to transfer your data next time.
EDIT: I forgot to mention that you have to connect the transfer cable ONLY at the back USB, NOT the front ones! Otherwise the transfer disc will not recognize the external drive properly.
Edited by MadMaxGR, 03 July 2012 - 01:15 PM.