Personally, I would recommend that you at least install W2K on an NTFS partition. That way, W98 will be "blind" to your W2K install & not be able to mess it up (W98 can't "see" NTFS, either version).
This is just my "inter-windows" paranoia, but I find my system lives longer that way. I've had a "stupid" Windows (i.e.: Win 9X/ME) kill off a "smarter" Windows (NT , W2K) in the strangest ways. As such, the above "solution" has made my live a lot easier.
Data on Fat-32, W2K/NT on NTFS - everyone is happy .
Hope this helps .