If you are using BM8, you need to have a fat32 partition to hold the boot info.
I currently have two Win98SE and an XP partition on my pc, with one of the Win98 partitions as the boot partition.
I first created the boot partion and loaded 98 PM7 etc.
Using PM7 i created two more FAT32 partitions, which were then hidden. Using the BM7 program, I booted up in the first new partition, and loaded another copy of win98. When this was all sorted, I booted up the other partion and loaded WinXP.
WinXP has a conversion routine that will convert FAT32 to NTFS, PM7 cant do this. You need to use the CONVERT command in a command prompt window. Make sure you have backed up your data first (mine is all on a second HDD). Typing Help COnvert at the command prompt will give you details on how to use it.
I cant see a problem if you need to restart by reformating and creating new partitions, as you still are only installing one copy of XP.