You are complely right.
Thats the biggest drive which you can install by only attaching it.
Larger drives are possible with two things to do.
You can attach any drive smaller than 128 GB and with a thickness of 5 mm like the 120 GB toshiba MK1231GAL with ZIF-Interface by putting an zif to ata dapter on it like this one
http://corkhead.com/kr/?p=4 .
No other adapter will fit in the case to my knowledge.
The adapter is almost nowhere to buy or extremely expansive...found one years ago for about 30 €.
[EDIT]
i have just seen, that the user libmartcom sells the adapter at ebay for 29$ + 15 $ shipping
http://myworld.ebay.com/libmartcom?_trksid=p2047675.l2559...told you it's expansive ^^
[/EDIT]
If you want to attach even larger drives like the 160 GB mk1634gal you have to make a modification at the bootloader which is discribed here:
http://forums.rockbox.org/index.php/topic,28808.msg186099.html#msg186099This is the largest drive you can built in the H120 because larger drives have an internal SATA interfave which is not supported by the player.
i heard rumors that large drives are supported now by the original bootloader but i havent prooved.
have fun