Yes win98 does. The limit is 137GB. Thus, use a disk up to 120G for win98.

The upper limit for a FAT32 partition is two terabytes, provided the BIOS in
your machine supports INT13 extensions. If it doesn't, then the upper limit
for a bootable FAT32 partition is 7.8 gigabytes. Win98 can handle large
drives, but with no INT13 interface present you'd have to split the disk
into smaller partitions.

Erik

The usable size limit for a FAT32 partition in Windows 98/Me/XP is 128
gigabytes (137 billion bytes).   The reason for this limit is that
FAT32 disk tools such as Scandisk and Defrag cannot work with drives
that have more than 4.1 million total clusters and the maximum
supported cluster size is 32K.  

Your hardware, especially the BIOS may also impose limits on the size
of the hard drive that it will recognize.   Check with the
computer/motherboard manufacturer for this information.

But if your hardware will support drives larger than 128 gb they will
have to be partitioned so that no partition is larger than 128 gb in
order to be usable under Windows 98.

Good luck

Ron Martell     Duncan B.C.    Canada