It's not the 128 MB that it's counting. Nothing in DOS will come even close to using all of that up.
It's counting base memory. A long time ago, someone decided that nobody should ever need more than 640 KB of memory, and DOS was created with a ceiling at that limit. This is called "base memory"; any memory above that is called "extended" or "expanded" memory, depending on how it's allocated. Typical programs are not capable of loading themselves into anything but base memory, so you have to keep that stuff somewhat clean.
Post the contents of your autoexec.bat and config.sys files and we'll tell you how to create a boot disk to get the games working.