You are probably going to run into a bunch of problems.  Have you tried the
software in compatibility mode?  If not, right click the shortcut or the
program's .exe file, select properties and see if there is a compatibility
tab.

I am not going to comment on the bootable CD because I have never tried it
personally.  You can install a floppy boot drive for less than $15.

Possible problems:  Your disk is probably NTFS and W98 cannot use it--go to
MVP Doug Knox' web site:  http://www.dougknox.com and click on:  Win XP tips
in the left pane.  In the right pane, click on Install 98/ME after XP.

2.8 GHz processor--see this article:
http://support.microsoft.com/default.aspx?scid=kb;en-us;312108

W98 does not support HDs over 137 GB--how large is your hard drive?

W98 requires a boot partition on a primary partition or W98 must be
installed on a primary partition.

Finally, there is a good possibility that you will not be able to find W98
drivers for your hardware.

Stuff you'll need:
1. Win98 startup diskette  (bootdisk.com)
2. Win98 install CD
3. Access to a PC with a floppy drive, has a burner, runs Nero for burning
or similar.
4. Blank CDR or CDRW

Nero can make a boot CD using the startup diskette as its source
information.  Or you make an image of the startup diskette with WinImage,
and rename the file extension so its compatible with Nero.  Make a boot CD
with either of these.
If you want, you can copy the Win98 install CD to the same media.  The only
catch is, you have to leave the session open when making the boot CD.  Use
Nero's ISO 9660 writing format when copying the 98 install CD.  Then close
the session.

I would use a 3rd party boot manager for what you're attempting.  Win98 must
be installed to a primary and active partition.  Won't work on a dos logical
drive.  Your current XP boot files are installed to the primary, active
partition.  Most 3rd party boot managers and some partition managers have
the capability of hiding partitions.  In this case, you want to hide XP's
boot partition, then install Win98 to an active primary partition of your
own making.