|The windows XP hard drive is probably partitioned as NTFS which 98 doesn't recognize. So it's not seeing a C: drive.|
You need to run FDISK first from the bootdisk and delete the NTFS partition. Then repartition, reboot and then format the drive.
Remember, once you do all that your XP is gone and can't be recovered.
If your hard drive is larger than about 64 gig the 98 version of fdisk won't see it right. In that case you need to use the updated or ME version of FDISK. If you're not sure what size hard drive you have check its model number. But if you only have a pentium II you probably don't have a very big drive.
I went over the partitioning and formating procedure in my # 13 here: