This item is from the Yet Another Enhanced IDE/Fast-ATA/ATA-2 FAQ, by John Wehman and Peter den Haan with numerous contributions by others. (v1.92).
There's nothing wrong; this is a limitation of the DOS FAT and Win95 VFAT filesystems. You will have to create multiple partitions in order to use the full drive size.
This limitation has been addressed in Microsoft's new FAT32 filesystem, currently only available in the Win95 OEM 2 release. It allows giant multi-gigabyte partitions. At the time of writing this release can be sold with new hardware only and is unavailable to ordinary mortals.