Where'd the files on my external HD go?

Hello,

I recently recovered my previously stolen computer, which I am currently using running Windows Vista. I had been using my old notebook which runs Windows XP, but it crashed and now the only way I can boot it is with a bootable disk. I read up on how to recover files from a hard drive when the computer itself won't boot anymore, and what I was told was this:
1. create a bootable CD
2. insert bootable CD into the disk drive of (my old) computer
3. attach USB mass storage device to (my old) computer
...at this point, the computer boots through the disk and I have multiple hard drive partitions to view data from. The instructions I had said to first make the USB mass storage hard drive partition read/write-able so that files/data can be copied and moved from the computer's original (dead) hard drive over to the USB storage device partition. All of this works just like the directions say it will work, but here's where I've run into problems.

The mass storage device I've been using is a Western Digital 500GB external hard drive, which is virtually empty. I formatted it in xFAT, since that seemed to be the recommended form for moving data from a computer running Windows XP. However, despite being virtually empty (when I view the external hard drive from my new comp it says 465GB are unused), when I start moving files from my old computer's hard drive (songs, word documents, spreadsheets, etc.) all I can copy are 3-4 files, depending on the size, because my old computer sees the external hard drive partition as having only 40MB's of free space, or something close to that, which I don't understand. Am I formatting the device wrong? Should I format it in NTFS, instead?

The second problem I've been having is actually getting the files off of the external hard drive and onto my new computer. I have a few select files, literally 3 or 4, which I am in somewhat of a bind to get access to but which I lost on my old computer when it decided to not boot up on its own anymore. I was able to squeeze all of these files onto the severely depleted memory of the external hard drive, but then when I attach it to my new computer, there appear to be no files on it at all. I've tried hiding and unhiding files, and nothing changes. Then, when I go back to booting my old computer from the CD, I can see the files again when I have the external hard drive attached to my old computer. I even reformatted the drive from my new computer to see if I might start clean and try again, but the same files appeared on the external drive when i plugged it back into my old computer, as if I hadn't reformatted the device in the first place.

in summary: (1) I have files that I need to retrieve from a dead hard drive on my old computer running Windows XP; (2) I have a Western Digital 500GB external hard drive that only shows 40MB free when attached to the old computer, and 465GB free when attached to the new one, which runs Windows Vista; (3) I can't see the select few files that I was able to copy onto the external hard drive from my old computer's hard drive.

HELP PLEASE!