When you install XP from the boot disk, XP gives you the option to create/delete partitions before you begin the install. Alternatively, partition the HDD with your Win98 boot disk using FDISK and then run the install for XP - XP will then see the partitions and ask you which one you wish to install it on. If you do it this way the XP installer will ask you to change to format from FAT32 to NTFS - accept this as it is a realy good idea for security. Better still format the disk correctly in the first place with the HDD manufacturer's format tool e.g. maxblaster3 from Maxtor etc.
In all my installs I usually have 3 partitions for Windows C: D: and E:
All programs go into C: inc Windows - the partition is approx 45% of the total HDD size; Windows Pagefile goes into D: (which is only ever about 2 to 3 GBs in size depending on RAM size now and intended in future); Docs and user files/email into E: This means the pagefile doesn't get fragged and the docs are kept away from Windows in case you ever need to reinstall the OS!
Final option - use the wonderful Acronis Partition Expert program - fantastic partitioner that runs in Windows - best i have ever used...
Happy PC building!

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