dualboot
I'm not too sure about partition magic... its supposed to be a great program, but I've never used it. It lets you change/create partitions on the fly without the need to format them and lose all your data. The demo version should have full functionality, but it has a time limit, I think. If I were you I'd make 2 extra partitions, one for win98 and the other to keep all your files in. If you ever have to format either of the OS's and reinstall, you can keep all your installers and drivers (not to mention movies and music) in the 3rd partition. That way you won't have to lose or backup that stuff if you ever need to reinstall windows. Besides that, in Fat32 smaller partitions are more efficient.
If you set up the OS's on separate drives 2 things might happen. 1) XP regocnizes another OS and adds it to its boot loader... a good thing. 2) It doesn't do #1, so you set up the 2nd HDD as though it was a single drive. Any time you want to change between the 2 OS's, you'll have to change the boot order in your bios(HDD0 or HDD1). You'll only have to change this setting when you want to switch. I recommend having an extra partition on each drive so format/reisnatll of an OS will not be a big deal.