If you still get problems use delpart.exe, you can get a copy from click here scroll down towards the bottom of the page. Unzip it and its small enough to fit on your W98SE bootdisk then bootup again with the W98SE disk and follow these instructions click here
I had trouble removing NTFS using FDISK, it will remove the extended "non-DOS partition" but it won't remove the logical DOS partition on extended drives, that's why I had to use DELPART to remove all the partitions so I could reformat. I spent a couple of hours at work trying to do that until I found that out.
The procedure should be: Boot from XP CD. Do not enter SetUp, instead press R to go to the Recovery Console. Select your XP installation (usually only one) press 1 and Enter. Type administrator password. You will be placed at C:\Windows> Type format c: /fs:fat32 and press Enter.
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