Just say 'no swap' partition & when you get to the cfisk part of the install use that to partition & format the new HD. Or if that doesn't work, run Knoppix from CD & use cfdisk to format the HD. Partition it so you have about 3-4 gig for the lInux o/s (Knoppix needs 2.4 Gig min, 4 is lots), allow about 300 meg for swap & format the rest 'vfat' which is the Windows 95/98/ME format. You need the vfat for a shared data drive accessible to both XP & Linux as Linux is not reliable writing to XP's NTFS format.
Alternatively, make a boot disk from your win98 laptop with Windows fdisk on it & use that to boot your computer & partition/format the HD with fdisk.
What Knoppix do you have? If it's 3.3, use the 'knoppix-installer' command instead of 'knx-hdinstall'.