I can only think of one thing that might be causing the problem, but it might not be the problem at all.
What did you format the new drive as? FAT32 or NTFS? It should give you an option when formatting... or there should be something you have to type when formatting. Can anyone help with this?
The thing is, NTFS formatted drives can read FAT32 drives, but FAT32 drives cannot see NTFS drives because its a new method.
NTFS is the better one to use, since it has extra protection and privacy settings, yet if the 160GB drive is FAT32, format the new drive (60gb)in this too and it might recognise it.
That is the only thing I can think of, and its definetly worth a try. There can't be anything wrong with the 160GB drive if it was working perfectly before you got the new 60GB drive
Hope this helps