You'll have to run FAT32 several times. When it starts it asks if you
want large disk support (or words to that effect). If you answer "yes"
it will create FAT32 partitions. So to create a FAT16 partition,
answer "no". Create your FAT16 partition then exit FDISK. Restart it,
this time answer "yes" when it asks the question, and create your
FAT32 partitions.

You don't necessarily need three partitions - you can install W98 into a
FAT16 partition if you can live with a maximum 2Gb primary partition size.
But you may not need FAT16 for DOS - the DOS version that comes with Windows
98 handles FAT32 partitions just fine.  If your DOS programs can
work with this version of DOS (most can) and if they can handle FAT32
partitions (almost all can) then there's no need for a separate partition
and a separate boot. In other words, install W98 and you get DOS for free.

If your application can run under the version of DOS that comes with W98,
but it can't handle a FAT32 partition, and you don't want to install Windows
in a FAT16 partition, then you can create a small FAT16 partition that will
be accessible from both Windows and DOS. It will have to be a logical drive
(in an extended partition) because Windows does not handle multiple primary
partitions. You will not need a boot manager because the Windows startup can
be interrupted to boot to a command prompt only.

If your application requires an earlier version of DOS then you will need
separate primary partitions and a boot manager to control booting to DOS or
Windows. The boot manager will activate the appropriate primary partition
and hide the other one.

Once Windows is installed you can install XP and you will get an option to
retain the existing OS.  If you do, then XP should (must) be installed in a
different partition. If you choose this option and you don't currently have
a boot manager then XP will install its own boot manager so you can choose
between Windows and XP.  If you have already installed a boot manager to
choose between DOS and Windows, then you will use that utility to configure
a boot that will allow XP to install to its own partition, which I think
might be tricky, depending on the facilities that the boot manager provides.

Current FAT 16 makes two copies of FAT.  Prior versions of FAT 16 only made
one FAT, no copy.  Which are you speaking of?
Dave