FAT<b><u>32</u></b>. FAT16 doesn't support partitions over 2 GB. If it was NTFS, he wouldn't even see the partition, let alone 5.3 MB.
I'd suggest deleting all partitions and fdisking it in the Win98 machine and not keep swapping it around - you might find the cause of the problem more easily that way.
Check the jumpers on the drive before putting it in the machine. Older drives (and some new ones still) might have jumpers to clip the drive to a limited size, and you might need to remove that. When you run fdisk, make sure you say Yes when it asks if you want to enable support for drives larger than 512 MB.
In a highly unlikely scenario though, it might be the BIOS causing this, either due to you having configured it wrong for the drive, or if your machine is very old, the BIOS simply doesn't support drives over roughly 0.5GB. This requires flashing the BIOS to fix, and not something I'd recommend to most users unless they know exactly what they're doing. How old is the computer running Win98?