You stated that "This has nothing to do with FAT vs NTFS." --> but in
fact, it has everything to do with it *if* the OP upgraded from
Windows 98 originally and just did not express that clearly.
How to uninstall Windows XP and revert to a previous operating system
http://support.microsoft.com/kb/303661
Once the file system is converted to NTFS - you cannot go back to an
OS that would be unable to use it - and that actually includes all
previous OSes - since the revision of NTFS is different in Windows XP
than prior OSes (Windows NT, Windows 2000.)
Also, the user could not just "add" a Windows 98 install now that
they have converted to NTFS - unless (MAYBE) they start using some
third party boot manager... correct? They would have to format and
install Windows 98 first.
Definitively, if they want to install Windows 98 now and get rid of
Windows XP completely - they will be formatting, installing Windows
98 and all of their applications.