Without simple file sharing, yes, each user has to have an account set up in WinXP in order to access any shared files.
If you're only trying to get files to and from the WinXP machine, then you can just enable simple file sharing on XP, and not have file and printer sharing on Win98. The XP machine is "protected" by the fact that it's using the 98 machine for Internet access, so nobody outside will be able to just look at your shared network.
If you still want to have the XP machine password protected, then disable simple file sharing, and set up an account with some other name and password. The same username will need to be used when logging onto the Win98 machine, or you may get prompted for a username and password. You most likely can't use the Guest account for file sharing, because it's not password protected and is for limited access locally. I haven't actually tried sharing files using permissions and usernames until just now, between two WinXP machines, and all I ended up doing was blocking access.
You should also be able to make a disc in WinXP's networking wizard that you use to set up a Win98 machine for access.