I did the exact same thing you want to do last year.
Insert the XP disk and format your drive then carry on with the install of XP. At some stage you will see a message on-screen asking you to remove the XP disk and insert your 98 disk for verification.
Once checked, [30 seconds] you will be asked to remove the 98 disk, insert your xp disk to carry on with the new install.
Upgrade XP disk is exactly the same as the full retail version, no difference at all except that you have to own and during the install insert your qualifying disk to be checked.
So, yes, your correct, do a clean install with XP upgrade, and during this install, insert the 98 disk to show you have the qualifying disk.