XP Home (notice no service pack?) is limited to 127GB drives. Once you get to about Service Pack 2, that limit is gone and it should work.
I have a Dell GX620 running XP Pro with an internal SATA drive and an external USB 2.0 SATA drive enclosure (2 dual drive bays, max 2 terabytes). Can I swap this external drive back and forth with my other PC, a Dell GX270 running XP Home and an internal IDE drive.