A clean install is always better than an upgrade, especially from Windows 98. It might leave some leftover files that you might not need. A clean install is always highly recommended, to clear the dross that you might have.
Just insert the WinXP CD at start up, and it'll run automatically (provided you have the CD drive to boot first in the BIOS). When it asks for a previous version of Windows, put that Win98 CD in. Plus, if you do decide to go with a clean install, you can choose if you want to use FAT32 or
NTFS.
Anandtech FAQ - NTFS vs. FAT32 If you are going to dual boot, and you want your NTFS partition to be seen in the other Win9x partition, just use FAT32. If it's a lone OS, then go with NTFS. The filesystem efficiency is so much better. Since you don't play games (like I do right now), I believe this should be the best route.