Hi namagodai. To wipe XP and reinstall a new copy of Win98 you will need to begin by using the Fdisk utility to wipe the current XP partition (even if it's a FAT32 partition it's still a good idea to fdisk it). Then you can reformat the drive and finally install Win98.
Before you do any of the above you will want to make sure that you have all of the drivers you need for the hardware that is in your machine such as Video, sound, modem etc. Windows 98 does not natively support much hardware and if you do not know the type of hardware in the machine you could have a hard time finding out later. You can get most of this information either from the documentation that came with the computer or by going into the Device Manager and writing it down. If your computer came with a drivers disk and the same hardware is in it now (or if you upgraded it and you still have the drivers disk that came with the new hardware) you're good to go.
Here are a couple of links on how to use Fdisk and how to do a Windows 98 installation:FDISK SIMULATIONMicrosoft's Windows 98 SE - CD Install on Blank Hard Drive