I would not recommend doing this. First of all the hard drive is probably formatted in NTFS, which means windows 98 will not install to begin with, and do a clean format of C:. Perhaps without warning. I would recommend burning a copy of Knoppix Linux. It is a very easy to use, newbie friendly linux, that boots offo f the cd with no install. It will automatically detect the hard drive, and you should be able to copy all important files off it and burn them to CD's.
www.knoppix.org
from there i would just suggest you do a clean install of the new windows xp version.
good luck!