98 does not need the C: drive as far as I know, in fact I vaguely remember having it installed on a different drive before...just make sure you have your partitions set up correctly and such and install and you should be fine...if you are using norton's system commander or such to actually choose operating systems at startup it will definitely be fine
it is possible to install win 9x on a d: or even a separate harddrive, but even though on a separate drive, win 9x will always install a few certain system files on the primary drive (c: ) which should not affect xp at all.
The easiest way to dual boot is to install 9x on c:, then install xp last on d: and it will automatically set the dual boot up.
It sounds like you have XP already installed and want to install 9x on another drive/partition. In this case you can install 9x on d: by telling it to during installation. This should appear like a normal installation. The very next boot should boot up to win 9x without any options (you will not see xp).
At this point, insert your xp disk and reboot, this will boot from XP cd. do a system repair for the boot files. after it is done, it should (should... LOL) give you the dual boot option xp/9x at boot up.