I asked my friend kilo your original question here is hid reply--
You can't fat32 a compressed drive. If it is to hosed, you would need an 98se boot disk that sees the cdrom and has fdisk and format on it. fdisk to LBA, thats fat32, or say yes at the prompt delete the old partition, make a new partition and reboot and format. Never turn the power off the machine while doing this. After format you'll see that it is only a 1.xgig Hard drive but it will hold win98se. WME sucks, and was made to help Celeron processors live in the 98 world.
I've asked him to join this forum too so look for him OK.
Oh I checked and see kilo already registered as member same day I did--I told him to get his butt back here.