Tony, are you sure you have to actually install the Windows 98 first?
I'm sure I recall doing a clean install of XP on a friend's PC with an upgrade copy of XP - it prompted me to insert the qualifying installation media (in this case, Win ME).
Otherwise, it sounds more like you are hitting a problem with the Win 98 install - it's as if the installation boot process isn't seeing anything above 640K RAM.
Are you able to boot off the Win 98 CD? I suggest that you remove all partitions from the disk, then boot and run the Win 98 install from the CD.
SD