You may have to set your floppy drive as the first boot device in the machine's
bios if it's not booting to the floppy drive.
Once this is accomplished, you should be able to use fdisk to delete all partitions (FAT or NON-DOS) on the hard disk, then create a new FAT32 partition. Once created, format the partition. Then run the 98 setup.
If the hard disk is larger than 64 GB, grab the updated fdisk utility from here;
http://www.d-a-l.com/dan/FDISK.EXE
and copy it to your Win98 boot floppy. This will handle disks up to 137 GB.
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