Yes, Ghost 2003 will clone a larger drive down to a smaller drive - if the smaller drive has enough room to hold all of the data on the source drive. I have done this lots of times, and even cloned my 200GB SATA drive down to an 80GB IDE drive for backup purposes in my own home.
Here is the common problem: Windows "remembers" drive letters assigned to the hard drives and will maintain those drive letters the best that it possibly can. For instance, my USB pen drive I assigned a drive letter of "U:". If you remove the drive from the USB port, and reinsert it, Windows remembers that the drive was lettered as "U:", even between reboots. Having two hard drives in the system works the same way, only people don't look at it in the same light. If your drive C: is 120GB and drive D: is 80GB, when you clone the drive from C: to D: and swap the cables so that the 80GB is the primary and the 120GB is the secondary the drive letters will still remain the same, except now you are booting from D:.
Anyways, with this in mind, we need to make Windows "forget" about the drive. Reboot the computer and go to the control panel. Open the "System" control panel, and under the hardware tab enter the Device Manager. Expand the "Disk Drives" node and locate the destination drive. Right click on the destination drive and select "Uninstall". Don't worry - this just removes the device from Windows' device node listing - you won't lose your data. You have just made Windows forget the drive's existence. Now close all the windows on your screen and SHUT DOWN. Do not reboot. If you reboot then the Windows plug-and-play enumerator will redetect the drive on the next startup and you will have to do this all over again.
Once the computer is off, remove the destination hard drive's power and data cables and turn the computer back on to make sure that the original disk boots alright. Once Windows is back up and the desktop visible, shut down for the last time.
Reconnect both the drives and boot from a Ghost 2003 boot disk and clone the drive over to the destination. Once that is done, remove the power and data cables from the source drive and move them to the destination drive, leaving the source drive completely unplugged so that the destination drive is the only drive available on the system and power up the system again. Windows should now boot. Once at the desktop, shut down and reattach the source drive using the cables the destination drive once used. The transfer should now be complete.