There may or may not be anything wrong, depending what figures you are talking about.
Can you tell us (1) what the hard size is according to the hdd manufacturer (2) what Windows says about the capacity of your C drive or hard disk in My Computer or Explorer, and (3) what Windows says about the the amount of disk space "Used" on the hard disk?
For example, if the manufacturer says the hard disk size is 60GB, then in Windows, the capacity of the disk will only show as about 55.8 GB. That is normal. (divide the manufacturer's size by 1.024 three times).
Then if you upgrade 98 to xp, assuming that you did not change the default option of backing up the old 98 OS files, that would account for some more used space.
XP also set a minimum and maximum size for the pagefile, which by default is (I think) 1.5 times and 3 times respectively the amount of your RAM memory. If you have 256MB RAM, the pagefile will have a minimum of 384MB and a max of 768MB. The pagefile size will also be included in the "Used" disk space. You can check the pagefile size (or virtual memory) by right clicking My Computer, select properties, Advanced tab, and Performance Options.
Then if you install sp1 or sp1a, certain old xp files will also be backed up.
I don't know how much space an XP installation plus a 98 backup will take up, but I doubt it will take 4.5GB (excluding programs), if 4.5GB is the actual "Used" disk space.
Post back if you do think there is something wrong.