You can use
Digtal Dolly (Hard drive utility) to resize and then create a FAT32 partition that '98 will reside.
I would prefer a second option, a second hard drive. In the event you no long need Win98 you can just pull the second drive or wipe it without fear of corrupting your primary hard drive. When instlling '98 choose the Custom install so you can designate which partition\drive you will install on.