yes you can have both win98SE and WinXP installed on the same computer.

They need to be installed on separate partitions and winXP will
automatically install a boot manager that allows selection of which
operating system you want to use during boot up.

If your using something like drive image, it is a good idea to back up to
another harddrive. You can back up a partition to another partition but if a
drive fails you may loose both partitions. Thus, i prefer to use a separate
harddrive for backing up too.