Well, I cannot say for sure...I've never owned any upgrade XP disks.
All I can try to do is proceed logically.
No other XP install CD asks for proof of a prior existing version...ergo, the key is not to use that particular disk, IMO.
In my eyes, a license is a license. The upgrade license has no particular mechanism in it that indicates otherwise, AFAIK.
<<Or, do i need to wipe the hard drive first?>>
If you mean...do you need to delete the existing install...before beginning a clean install...of course you do. A clean install is one where previous installation of XP is no more.
If you have your Windows 98 disk...I really don't know why you are making a big deal of this. A clean install can be accomplished with an upgrade version if the user owner has the CD. Back in the days of Win 98, I believe that everyone was given a Win 98 CD.
Clean Install Procedure with Illustrative Screen Captures - http://www.theeldergeek.com/xp_home_install_-_graphic.htm