Personally I would keep the XP on the disk that it is on (D) and wipe the larger disk. You can then dump programmes, songs and turgid information on the large disk thus keeping the disk with the XP OS clean and tidy. You will have to edit the boot ini. file to prevent lock ups etc....it is easy to do. Billy boy has a good walkthrough....click here and I think this one is a better site IMHO....click here
An easier way to get rid of Win 98 is to just delete the C:\Windows folder (do this from inside XP). Then just delete the C:\Program Files folder (providing that you haven't installed any XP progs in there)if you do just delete the C:\Windows folder, also edit the C:\boot.ini file, take out all references to Windows 98 and ensure XP is set as default OS and that the timeout is set to 0. Have a butchers here.....click here for a more comprehensive explanation.