Regardless, whether its upgrade or a full version - all the windows XP files are still on the CD. Windows 98 and Windows XP are not the same. The new installation of windows XP is not going to use the same OS files as windows 98. The only thing that may happen here is that some settings and things like 'favorites' and your documents will still be available once installed.
Installing it from the CD will give you the option for a fresh install without the windows 98 junk still on there.
THe XP upgrade is going to have the same files as the 'full version'. The only reason it's upgrade is to sell it for cheaper. Try it. it should work.
If your cd is not bootable, you can download windows XP setup boot disks from microsofts website
How to obtain Windows XP Setup boot disks