You can create more than two partitions using FDISK.
I'm guessing you doing this dual boot clean.
After formatting, boot up with the win98 start up disk. To partition, type in FDISK. Say yes to enable large disk support, and create a primary partition. Then follow the directions to create a logical disk drive/extended partition. I forget the exact words, but you have to create a secondary logical disk drive or something, and then from there create the extended partitions. You'll also want to follow the directions to set the main partition as the active partition.
Now before you go on. Figure out how you will want to use this set up in the future. If you will be using Win2K more than Win98 (in my case and in most cases) you might want to install Win98 on the D: and install Win2K on the C: just for organizing purposes. I have my Win2K on the E drive and Win98 on the C drive and the organization drives me nuts.
What I would do is create at least three partitions. Use C: partition for Win2k, D: for Win98 and E: for back up purposes. For Win98, for OS and some games, I would recommend about 3gigs. For Win2k, for OS and some programs I would recommend at least 5gigs. I try to leave as much space for the back up drive as possible.
Now that you have finished partition, reboot and install Win98 on the D: or whichever drive you want. After finishing the install, install Win2K on the C:. You can just start the Win2K installation within Win98. You'll want to install new. Not upgrade, or it'll install over Win98.
I can't really think of anything else... if you have more questions just ask...