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Then, it should be possible to set up Win XP's boot manager for dual boot, but I don't know exactly how.
Install XP (DO NOT use the upgrade option).
It really is that easy.
Each OS should be installed in its own directory, but they can coexist on the same drive without difficulty. However, you may prefer to install XP on a NTFS partition.
XP will provide the dual-boot options - an additional boot manager is not required.
Simply install Windows XP, install VMware server, create a new virtual machine and install Windows 98 in that machine. You can then run both OS versions at the same time without rebooting.