Neither Win9x nor NT4/2K *have* to be on C:. They will need to access C: in order to write some boot information there. See my partitioning link below for way too much info on the subject.
Now, since both Win98 and 2K need to access C:, C: must be FAT16 or FAT32, and not NTFS (for natural dual-booting, without BootMagic or another boot loader). If C: is already NTFS, you will need a third-party program (like BOotMagic) in order to dual boot. If C: is only FAT32, you can boot the Win98 CD and run setup from there. Start the install with 'setup /ntldr' and put the Windows directory on D:\Windows.
-SUO