W2K can see fat16/fat32/ntfs - regardless of what file format it (W2K) is installed as.
You have a single partition = fat32 = 98?
You can use PM to shrink the primary down (suficiently) to allow an Extended partition area. Then subdivide this into two logical-drives, and format both as fat32. Your HD will resemble:
Primary:
c: = fat32 = (Active Primary) = '98 = ???Megs/Gigs - your choice; just be sure the reduced space for the Primary is more than adequate for the current '98 installaton to reside there...
Extended:
d: = fat32 = data = ???Megs. (your choice);
e: = fat32 = W2K = 1Gig min. - 2Gigs +???;
Initially e: can be fat32 and you can convert to ntfs later (once you're happy that W2K is running OK) if you wish; or leave e: unformatted when setting up the partitions and then allow W2K to format it to ntfs during W2K install to e: . But DO format d: as fat32 when configuring the Extended partition.
Logical-drive d: allows sharing of common data (as fat32) between '98/W2K regardless of which OS is active (especially if W2K is ntfs). You can also further subdivide the Extended area to allow a third logical-drive, after the fat32 data area, and set it to ntfs - if you want to play with ntfs permissions.
Remember to install/apply any service pack?
Also ensure you have all drivers you will need before starting out; and to ensure your system is W2K compatable?
You will have to install apps for W2K - those in '98 will ot be available to W2K.
MAKE the ERD once the dual-boot is set up OK.
M$ and the Gurus out there encourage/prefer that the shared data areas 'sit' between the two installed OS... which is why W2K at the (physical) end of HD.
C: will hold the present '98 installation (and apps) - 'and' also the boot/start-up files for W2K. Do NOT reformat it otherwise you lose access to W2K - until you do a repair routine...
You will have dual-boot system; a boot menu with both OS listed; you can set the default to boot via W2K, and also choose at boot-up which to use.
Read the PM6x or later manual to be clear on how to shrink partitions etc. (and perhaps for other ways to go about it all, as well as the above).
You can use PM to create a second Primary and install W2K there (fat32 initially) and use PM's boot-magic (an add-in boot-manager) to choose which Primary and thus which OS to boot. Unfortunately this apporach does not allow access to the other partition and any data therein - the 'inactive' Primary is hidden from the 'active' partition. Consequently you would have to establish an Extended partition for data (which can be seen by whichever Primary/OS is active)... But why complicate things unnecessarily by using an additional boot-manger - when W2K has one included? I sugggest that the routine I've detailed above (and Extended partition and subdivided) is much more straightforward to set up?
Incidentally once you start using PM to create/configure partitions do not use Fdisk (from '98 boot-disk). A chap on one the forums here did just that recently and I think he 'lost' everything... PM crashed out once Fdisk had been re-introduced into the equation (after PM had created the additional partition/logical-drives) as it could not recognise changes made by Fdisk...
You can still (should be able to) use the format command though without problems...
Finally - ideally back-up all critical data off the HD before starting out? 'Always' a good thing to do before playing around with a HD (especially a single partition HD...).