Win98 must be installed on a primary partition. Furthermore, the primary partition it is on must be the only visible/enabled one on the drive whilst it is running, otherwise you risk data corruption. Which means it'll have to be near the front of a drive, due to these two things. I don't think it matters which physical disk you stick it on, but I'm not certain on that. I'll go test that now, actually
In any case, I reckon if you set up the FAT32 partition correctly as above, at the front of a drive as a primary partition, and hide all the other partitions that could cause problems, you can install Win98 as normal. Then use something like the grub bootloader to multiboot, remembering to configure it to unhide/hide partitions as appropriate depending on which OS you pick in the menu on startup. Obviously you have to make sure you have a boot CD or something handy (eg Gentoo LiveCD or Knoppix) so you can unhide the other partitions again. so you can get back into linux to set up grub.
EDIT: Ok, maybe you shouldn't do that. Looks like Win98 only wants to be installed on the first HD, and also if it doesn't recognise the partition type, including NTFS, it'll want to wipe the entire disk and take over the entire thing. Hmm.
Looks like you can either a) install on the first disk. This requires resizing the partitions on the first HD to make space for a FAT 32 primary partition so Win98 won't take over the whole thing. Or b) install on the second disk. Win98 wants to boot off the first though, so you'll have to physically swap the HDs around permanently. Before swapping, you'll have to edit your /etc/fstab in linux to reflect this change so that still works, and the boot.ini on the XP partition too so XP still boots. Then make sure a bootloader is set up on the to-be-new first disk correctly to boot either of your existing installations. Then swap the disks, and check they both still boot fine. If they don't, then you might wnt to swap the disks back and double check your settings. If they do, then make the FAT32 primary partition on the new first disk and install Win98. Then you'll probably have to use Knoppix/Gentoo Live CD/linux bootdisk to re-setup your bootloader again since WIn98 will wipe the working one.
Clearly, the second method is pretty nasty, though I wouldn't be surprised if there was a simpler way to do this