|You figure wrong, it's not a mismatch between XP and 98 at all. XP uses ME for it's boot disks and even that is not the real problem.|
The problem is that Windows doesn't do DOS disks worth a hoot. You can buy a box of new, formatted floppy disks and have maybe two work for you for a while. But if you take the same box of floppy disks and boot to true DOS mode using 98 for example and formatted those floppy disks in DOS mode they would all work until Windows wrote to them for about the third time, then they start to blow chunks and become unreadable and un-formattable in Windows all over again. If you stick with DOS and access them only that way, they are good as gold for a long, long time.
To fix your situation you need to have a floppy disk that was just formatted by any 9x system booted to DOS. A DOS box running in Windows is still using Windows drivers (hsflop.pdr, ios.vxd) and they fail in short order for some unknown reason. Then your downloaded .exe would be able to expaned onto the floppy with some resonable success. Until you have a good floppy disk, you can't get there from here.
If you have an OEM 98 CD then the CD is bootable. And along these lines you might find some ISOs out there that can boot 9x for you too. Use your XP box to burn them of course.