First of all, how a OS Install question got on a PS2 backup discussion forum is beyond me.
Second of all, your first mistake was making it a fat partition. Fat partitions will only recognize 2Gb sectors, therefore after the OS bloats itself onto the HDD, you only have 500Mb left. Reformat using an NTFS partition and you'll be golden.
Best bet is to start over fresh. Boot the PC to the windows setup disk. When it first starts up, rapidly hit F12 and you should get the boot loader menu. Boot from CD and go into setup that way. It'll give you the option to delete the current partition and create a new one. Create the new one using NTFS.
If F12 doesn't get you there, go into your BIOS (Usually F2, del, esc, or a couple other keys depending on who made it) and change your Boot Order so that the CD Rom loads first before the Floppy and before the hard drive.
