I think you're hitting a few different problems here. Lets work though the different issues you are facing.
Lets look at the Western Digital Green HD spec sheet: WD Green series spec sheet. Note the SATA speed is SATA III (6.0 Gb's). Now click on the link above on your system specs. There you'll find your system is SATA I (1.5 Gb/s) sadly just on this one aspect this drive is too fast for your system without altering its SATA compatibility jumper. If your drive doesn't offer the jumper you'll need to choose a different drive that can be set to SATA I (1.5 Gb/s).
Now lets look at the next issue the drives size. This gets into what you used for setting up your partition: HFS or Extended (HFS Plus). If you have one partition which is Extended (HFS Plus) you'll be OK, If you setup your drive with HFS you'll need to redo it as it can't support your 2 TB drive in a signal partition. Here's a good Apple reference on OS-X's limits: Mac OS X: Mac OS Extended format (HFS Plus) volume and file limits.
I would encourage you to upgrade to at least Leopard (10.5.x). Your system can support upto Snow Leopard (10.6.x).
You should make sure your systems firmware is updated. Follow this Apple T/N: EFI and SMC firmware updates for Intel-based Macs.
We sorta have a chicken & egg problem here...
We need to have the newer EFI in the system so the drive I think will be the best fit for you will work correctly (keep reading).
First lets see if we can setup an external solution here as we'll need that. If I remember correctly I don't think it will boot up via a USB drive, I think it will only boot up via an external FireWire drive. If you want to give it a go, get a USB thumb drive (16 GB will do).
Using your recovery disk to boot up the system setup the USB drive (it is likely setup with FAT32 so you'll need to fix that) as a bootable drive then using the boot up manager (Option key) select it did it boot up? If not we then need to find a FireWire case to hold your HD and follow the below steps.
OK, on to a better HD drive:
The problem you are facing here is many of the current HD drives are now fixed SATA II or SATA III drives (even SATA II drives are getting thin).
What we need here is a drive that has auto SATA port sense so it automatically adjusts to the SATA port the system has. Seagate offers such a drive but unlike a standard HD it's a SSHD which also will give you some more zip! Here's the info on it: Seagate Desktop SSHD and here's the spec sheet: Desktop SSHD specsheet. Note the line SATA Transfer Rates Supported (Gb/s) is 6.0/3.0/1.5 So SATA I (1.5 Gb/s) is listed! Go ahead and install it into the external case so you can format it and install the OS on it using the same methods as the USB drive. If you got the USB drive working you can skip this step as we don't need the external case solution.
Now don't go crazy here! I would stay with the 2 TB drive or better yet, I would go with the 1 TB drive. While I understand your desire to have lots of storage there is a bit of give and take going on under the hood here. The bigger the HD the more RAM it needs to hold its tables. While its not much, you do have a system which is limited to 2 GB of RAM so you don't want to waste it on a large HD (or SSHD) table when you need it to run programs and data. (hopefully you have maxed out your systems memory).
OK, where are we now:
We either have a bootable USB drive or we have a external FireWire case to hold our new drive which has been formatted and prepped with the OS we want.
Now you'll need to down load the firmware upgrade (I assume you check it and its needed) and place the updater onto the bootable disk we have setup (USB or FireWire).
Once the firmware is updated you should be able to open your system up again and swap out the HD for the new SSHD drive and you should be working!
Let us know how it goes - Good Luck!