did you use fdisk to create the partition?
if so, did you reboot after deleting the old partition?
did you reboot after creating the new partition?
did you format it as fat32 (to later format it during xp install as ntfs) before rebooting after creating the partition?
Since the current usable space on the drive is so small, you could copy whatever data is on it to another drive. Then use computer management to delete all partitions and create new one(s) for whatever size you want. Then move the data back.
Or, you could just create a partition in the unallocated space so you'll have one 2GB partition and one 17GB partition.