Macbook pro late 2006 2nd hard drive issues...please help!

I have a Macbook pro late 2006 model. I have recently purchased a hard drive caddy that is designed to replace the optical drive and serve the original MacBooks Hard drive.
I have put a new SSD drive in the place of the original hard drive, removed the optical drive and put this caddy in place with the original hard drive.
My original hard drive was 100% working.

I have the system working perfectly with OSX Lion using the sad drive as the start up drive. Its certainly given the system a huge boost in performance but with one catch….

The original hard drive in the caddy is not showing at all in Lion and i can only see what i "think" is the drive in recovery.

In recovery disk utility the disk shows separately from the sad disk and is listed as disk one below the ssd drove showing a partition called "Mac OS X base system"
The HDD is really 120gb in size but in info it shows as just 1.39gb in size.
I have tried every route with it but the First aid tab and erase tab has every option greyed out.Restore fails using ssd image with error 16 resource busy.Info also says that drive isn't writeable and that it is Mac OS extended with Mount point /.

It would be great to utilise this HDD as a second hard drive on the system but I just don't know how to do this. I am a fairly recent convert to Apple computing and lack experience in this OS, though I am no stranger to computers.
Any help, suggestions or advice would be greatly appreciated.
My thanks in advance

The logical thing to do is to temporary swop the SSD for the original 160GB HD, then check if it boots and correctly displays the drives parameters. If it does, you have an issue with the caddy, it is either faulty or not compatible. If the original HD fails to boot it's likely you have been unlucky and it has failed.

Totally agree Steve, tried that and the drive works fine. I guessed as much that the caddy was faulty but just wanted to be sure as i am not so experienced with macs.
Though having said this i don't really see why such a simple connector conversion, like the one the caddy is performing (or perhaps trying to) can end up with such results! I would expect it to either work or not show the drive anywhere.

Here is the problem. The original Drive is SATA, the CD slot you are installing it into is IDE completely different standards. The make adapters to plug SATA drives into IDE ports kind of like what you got, but they are not the best solution. Here is what I recommend, either install the drive into a USB enclosure or purchase a IDE caddy and Drive and use that. The enclosure is going to be much cheaper.

Thanks for your reply rustyk. Of course i realise that this type of caddy is converting the connector. It requires abit of extra electronics to manage it and i think the caddy has a fault in this way.
Yes it would be easier to have an external enclosure but thats simply not so portable.
As for price there really isnt so much in it to be honest...and really with the sort of prices we are talking its not really a big deal either way.

My main purpose for this thread was to ensure that i wasnt missing something ,as i am a relatively new mac user.

I disagree on the portable part, but I have the retina display MBP and don't have the option on 2 internal drives, so I guess I just got use to the external drives.

Im not saying external drives arent portable as clearly they are...just less portable compared to internal drives. I mostly use a laptop for musical uses.... so there is enough else to carry as it is!

This older model is great enough for what i need and if it gets knocked around it wont matter as much as a newer macbook pro.
However i am very much enjoying having a Mac laptop , so i guess i will probably get something new for other uses....just dont tell the wife just yet!