To remove Windows 98, start Windows xp and then delete the folder that contains Windows 98 (by default, this is the C:\Windows folder on the local hard disk).
NOTE: If there are any programs installed in Windows 98, you may want to uninstall these programs before deleting the folder.
You also need to manually edit the Boot.ini file to remove Windows 98 from the list of boot options.
To edit the Boot.ini file:
In Windows Explorer, click Folder Options on the View menu.
On the View tab, click Show All Files, and then click OK.
Click the root folder of the local hard disk, right-click the Boot.ini file, and then click Properties.
Click to clear the Read-Only, Hidden, and System check boxes, and then click OK.
Open the Boot.ini file in Notepad.
Remove any entries that no longer point to valid installations of Windows.
Save the changes to the Boot.ini file, and then restore its attributes. To restore the file's attributes, repeat steps 3 and 4, but click to select the check boxes.
DO NOT FORMT THE C DRIVE
By preference I would boot with the XP cd and at Setup format both drives and reinstall XP on C