If you had a Win98SE update disk instead of the full install and installed Windows 3.1 first and then Windows 98SE; you would be limited to the disk size Windows 3.1 recognizes. I've run into that issue before. If that is the case, install from the Windows 98SE update disk and it will ask to validate that you have a previous version of windows. Insert your Windows 3.1 disk to validate and continue with the full Windows 98SE install. You'll be able to get larger partitions. Also, be sure you install with all your existing disk partitions deleted with FDISK; otherwise, it may use your existing partitions. If any of this is relevant, you'll want to delete partitions, repetition, and format before doing a reinstall. Basically start from scratch.
Also, depending on the machine you're using you may be hitting BIOS limits. Be sure you have upgraded to the latest BIOS. It may help. I've got an old P5-120 I tried putting a 40GB drive in but the bios would only recognize about 20GB. It wasn't a Windows limitation. I was installing Linux.