click here and click Time Support, and then under Technical Support, select Reload, and see which option your friend has.
If he has only a rescue floppy, it's Orange Recovery Disk version 3-5. If he has a floppy and a Reload CD, then it's Orange Recovery Disk version 6 and Reload CD. If he has only a CD, then it's Reload/Backup CD Only. Click on the link and read the procedure. Before restoring everything to factory settings, better detach any new hardware added by your friend first, such as printers.
On upgrade to XP, even if your friend has a Reload CD, it's not an upgrade qualifying CD, and so he can't format the hard disk first and install xp from scratch
He can certainly insert an XP upgrade CD in a working 98 and choose the upgrade route to install XP.
He may be able to install a new fresh copy of XP (instead of upgrade) by inserting the upgrade CD from within 98, and select the New installation (Advanced) mode, but I'm not sure about this.
Trouble with the combination of a Reload CD of an older OS and an XP upgrade CD is that in future, if you need to reinstall a fresh copy of XP, he will have to reload 98 from the Reload CD, and then install XP, which is a real pain.