If you would have attached the 120G HDD to the computer via a USB adapter or dock, you could have saved the image directly to the new drive. Since you didn't do that, you need to create a Rescue CD (hint: use the Linux boot cd option) that will allow you to boot from the CD and restore the image to the new drive.
After image is complete, remove old hdd, install new. Boot from CD with external drive attached. Restore image from external drive to new HDD, when restore is complete the new drive should be bootable and exactly as the old only with more disk space.
I just noticed you are using Win 7 which means you may need to image and restore 2 images. Does your original HDD show a 100M partition in addition to the C: drive partition? If so, you need to image that as well. When you restore, restore that 100M image first, then the C: partition image.
If I had read your original post more carefully and saw that you have Win 7 I would have recommended to use Win 7's built-in image program the Win 7 repair disk. The results will be the same but you wouldn't have needed to DL Macrium.
Edited by strolln, 11 June 2011 - 07:32 PM.