Did you run Fdisk to delete all the partitions on the drive? Then reboot, recreate the partitions. Reboot, then format, and install? A bit of a long way to do it, but should ensure that the partitions are deleted and created properly.
Basically, Windows 2000 runs on NTFS (or Fat32, but your install has NTFS), and Windows 98 cannot see an NTFS partition to install itself onto. Fdisk can, and you have to delete the partition through Fdisk first. From there, you create a new one, format the drive with Fat32, and the install Windows 98.
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