Using that command won't work. This is something I have on putting the xp setup on the harddrive but have not tried it.
You'll have to use xcopy... there are important subdirectories, unlike the win9x setup files.
Let's just assume that your cdrom drive is E: while booted with a win98 startup disk. Smartdrv is loaded automatically when you choose CDROM support... so trying to load it again will only display statistics, so don't bother for this stage. Ok...
C: (change to the C:\> drive... can be another partition where you store the setup files, substitute correct drive letter if so)
md i386 (create a directory)
A: (change back to A:\> prompt)
xcopy e:\i386 c:\i386 /e
That will copy the contents of the i386 directory and it's subdirectories, to the i386 directory on the C: drive (or wherever we put it). The /e switch is the only one required for this (copy directories, including empty ones) Go for a coffee, for it will take a while.
When it's finished, reboot again with the Windows 98 startup disk. This time, choose 'Without CDROM support' for we no longer need that driver overhead.
Now, we need to load smartdrv or the file copying phase will be slower than a constipated tortoise. From the A:\> prompt...
smartdrv
C:
cd \i386
winnt
The installation should now be under way.
Also have a look
here & see if you are missing anything in booting from the xp cd.