Sure, but I doubt its going to fix your problem, winxp setup is able to delete partitions, and format. You said that the system isn't compatable with win98, meaning its a newer system.... This wouldn't happen to be a new build that your 'fixing' would it?
Let just throw a wild guess into the mix. This is a new build with sata HD, winXP setup is is telling you it can't continue because it says theres no disks to install on, and you can see the drive when it(the computer) first turns on, so you know its there and working. Is this whats going on?