I'd suggest deleting all partitions on the drive, installing Win98 on drive C (limited to whatever space you wish to use for that OS) formatted as FAT32, then boot the W2K install CD and use it to create a drive D partition formatted NTFS with 4K clusters. For general purposes, those would be the desired settings / configuration. You wind up with each OS running on the file system that works best for it, and W2K handles the boot menu chores automatically. Since you're asking for information, my best suggestion is for you to go to the Microsoft Knowledge Base and search on "dual boot" and "mutiple boot". You'll get a lot of hits. Read the ones pertaining to using W2K with other operating systems.
I can't tell for sure from your message, but I think that what you're considering is using a third party product to allow your Win98 installation to access your NTFS partition, and, of course, your W2K isntallation will be able to read the FAT32 partition with no problem. I don't know about the third party app thingy making it possible for Win98 to read / write to NTFS partitions. I'm a strong believer in KISS. I would be concerned that the integrity of the NTFS partition might be adversely affected, so I'd have to have a REALLY good reason to bother with this sort of thing.
Do I understand correctly that you had Win98 and W2K sharing a FAT32 partition? In that case, let me remind you of what you already know, and warn you about something that you might be tempted to do. Despite all the pundits who say that Win98 and W2K can share a partition -- it's a BAD idea. That's what you already know. What you might be tempted to do is to share installations of software between the two partitions. That's a bad idea for some of the same reasons. Many (most?) apps still keep some "local" configuration information in their program directories. If all of the configuration data for a software installation were kept in the registry, then shared installations might be a good idea. As it is, my best advice to you is to install apps you want to use with Win98 in the Win98 partition, and install apps you want to use with W2K in the W2K partition. And if that means you install some of them twice, so bet it. On the other hand, if you're only planning to share data, no worries -- as long as any compromises in security that this entails are acceptable.
Hope this is helpful.
Regards,
Jim