Defragging the Win98 partition is meaningless as far as installing Linux to the rest of the free space outside of the C partition is concerned. From what you posted it seem that the Debian installed does not think that there is free space.

You never did say what you did to get rid of that D "primary partition". If you didn't get rid of it this is the result that I would expect. Please tell us how you got rid of D to freee up that space for a Linux and a Linux Swap partition and post the current information from doing a "4" in windows Fdisk.