2 hard drives... round 1... fighting.

Some snippets to try out:

In XP, in the properties of the connection, TCP/IP settings, make sure that use NetBIOS over TCP/IP is selected. NETBIOS is what W98 uses.

Check that both PCs are in the same WORKGROUP, and that "files and printer-sharing" is enabled on both PCs.

You could try to enter a new User (with Admin rights) on the XP-machine, with the username AND password (this is a must for W98) of that W98 machine.

In XP, unflag the IPX protocol (if it's installed).
Try uninstalling the network card in XP and adding it again.

On this website is a lot of info. They use the (less popular) Netbeui protocol. You could try that if the above fails:
Setup 98: http://www.homenethelp.com/web/howto/HomeNet-Win98p1.asp
Setup XP: http://www.homenethelp.com/web/howto/HomeNet-Win2kXP.asp

HTH