HELLO!
One of the early setup screens displays your partitions
allowing you to select the root disk for the NT install
files. Apparently NT thinks you _do_ have a partition and
it is bigger than 4GB. My install notes say the maximum
partition should be 7.8 but....not so for me.
ADDITIONALLY - XP Home is not a valid upgrade for NT, you
must use XP Pro. If you own another windows disk you can
use it to satisfy an XP Home upgrade without having to
re-install anything. If you are using XP Pro re-post with
more details and someone should be able to get you on your
way. :))
Anyway at the hard disk install screen "delete" the
partition and make a new one smaller than 7.8 or 4.0
(whichever works for you) and you will be able to
re-install NT 4.0
cheers - eddacker
note: This was my best guess answer.

To do a clean install, either boot the Windows NT install CD-Rom or setup
disks. When you get to the point, delete the existing NTFS and or other
partitions found. After you delete the partition(s) abort  the install, then
again restart the pc booting the CD-Rom or setup disks to avoid unexpected
drive letter assignments with your new install.

Depending on your drive's geometry Windows NT supports a system partition
(the first primary active partition and where the files required to start
the OS reside (boot sector)) limited to 7.8gB NTFS or 4gB Fat16, while the
boot partition (where the OS is installed) is not limited in size. You wont
be able to create a system partition greater than 4gB with Windows NT Setup;
if you need a system partition 4gB - 7.8 gB, you'll need to use Partition
Magic or use another NT machine to create the first primary active
partition. The system and boot partition can be the same partition.

If you created one large system/ boot partition > 7.8 gB and installed the
OS, it may work, but the problem is if you defragment the drive or service
pack the install and the files ntdetect.com, ntldr, boot.ini, and
ntbootdd.sys end up being relocated to a point beyond the 7.8 gB barrier,
then the bootstrap process wont be able to find them and the OS wont start.

Once the OS is installed you can use Disk Administrator to partition and
format the rest of your drive. You'll need atapi.sys from SP4 or later for
Windows NT to be able to recognize a drive larger than ~ 8 gB. See the first
article for the link and instructions.

Installing Windows NT on a Large IDE Hard Disk
http://support.microsoft.com/default.aspx?scid=KB;en-us;q197667

Windows NT 4.0 Supports Maximum of 7.8-GB System Partition
http://support.microsoft.com/default.aspx?scid=KB;en-us;q224526

Boot Partition Created During Setup Limited to 4 Gigabytes
http://support.microsoft.com/default.aspx?scid=KB;en-us;q119497

Windows NT Partitioning Rules During Setup
http://support.microsoft.com/default.aspx?scid=KB;en-us;q138364

Possibly this one may apply.

Cannot Create Partition Greater than 1 GB during NT setup
http://support.microsoft.com/support/kb/articles/q137/4/74.asp

Hey, before you plunk Windows XP on this computer have to
check out the Minimum requirement for Windows XP?
Unless you have at least 192 MB of RAM and a PIII - 800 +
and a 10 GB hard drive,.... you should reconsider.
You *CAN* install Windows XP Upgrade on a clean drive! I
don't know why people do this... but it's *unnecessary* to
install Windows NT first!
Anyways, simply delete the old partiton (which might be too
big for Windows NT setup to see) and then recreate it under
4 GB and Windows NT Setup will be happy.

I'm no expert, but since NT is an older OS it may not be
able to work with partitions as large as the newer hard
drives.  This was an issue in the old days of Win '95.  If
you partition your hard drive into 2+ logical drives (C:
and D:, for example) then that might solve your problem .  
Check your WIN NT documentation for the maximum partition
size.  Hope this helps!