I checked the internet to look for others with this problem. There were several comments about iPhoto remembering the size of the original HD on which it was installed and several workaround solutions but no solution till now...
Turns out the solution is easier than the workarounds (e.g export to alternative HD etc). All you have to do is to erase the iPhoto preference file ~/Library -> Preferences -> com.apple.iPhoto.plist and all is good again.

