Heyyo,
Now, in order to use windows xp and 98 together, you'd have to install windows 98 first, and then windows xp.. so yeah, you'd have to pretty much re partition your hd, probably using partition magic since it's one of the only ones I know that can re-partition HD's without formatting them..
Partition magic:
http://www.symantec.com/partitionmagic/
Now, I dunno if the latest version of partition magic can change HD letters (mainly the C: in this case) to others, so odds are you'll have to reformatt your C: to use windows 98. Btw, win98 doesn't support NTFS, so yeah, most likely you'll have to reformatt your C: and lose all your stuff, so back up everything important to CDs/DVDs and then format away..
this is how you'd have to setup your computer:
C:\ would be FAT32, windows 98
D:\ (or anyother drive letter) would be either FAT32 (so win98 could access it) or NTFS.
Now, you can actually use NTFS with win98. There's a couple ways:
NTFS for win98 (Read-only) freeware:
http://www.sysinternals.com/Utilities/NtfsWindows98.html
Paragon NTFS for Win 98 (read/write abilities) and both EUR & USD @ 29.95:
http://www.mount-everything.com/ntfsw/
Yep, so it would take some work to get win98 going with windows xp, but it's always a fun little thing to do.