Maybe i just sound plain stupid now and you have already tried this or know this.
But you must install it while rebooting your computer.
1.in windows put the windows 98 cd in
2. Restart your computer
3. During the start it says: press any key to boot from the cd ( or something similair.
4. You will get in the menu and choose install new Windows.
5. Simply use another partition to install it on.
6. Wait while installation is ready
I hope it works and this is what you meant.
And sorry for any mistakes, as my avatar says: virgin techie