Not to rain on your parade but....
To restore Windows 98 on your computer:
1. Insert your Windows Startup Disk into your floppy disk drive,
and then start your computer.
2. On the Boot menu, choose Start your computer with
3. At the MS-DOS command prompt, type n:
(where N is the drive letter of your CD-ROM drive)
and then press ENTER.
4. At the MS-DOS command prompt,
type CD tools\sysrec and then press ENTER.
5. At the MS-DOS command prompt, type pcrestor
and then press ENTER.
6. Follow the instructions that appear on your screen.
This reinstalls Windows 98 on your computer. When Setup is complete, the System Recovery wizard starts.
From 98CD ->Tools\sysrec\recover.txt
As stated this procedure re-installs Windows kernel files leaving setting and files alone. BUT ONLY with the Orginal Install CD.
Well I am willing to give my two cents worth.
I had this exact!! same problem a week or so ago, but I it was on a Windows 98se system. So that said, it may, or may not, work for you. I just thought I would tell you how I repaired my system. It did drive me crazy for about three days.
Since windows is still windows maybe this will be of help to you.
The 'Key' for me was finding out that when I could get into F8, when windows is asking you how you want to start; ie "Safe Mode, Command Prompt. etc.( and this took many restarts for me to get into) to tell windows how I wanted to start. the key is NOT to tell it to start with Window CD 98 support, or in your case starting with Windows XP Cd rom support! The key is to tell it to start with CD ROM support only.
At this point I restarted the computer and came up with a C:/ (prompt) at which point I pointed it to the CD ROM drive letter, the letters may have changed at this point so you should try D:/ etc. Once one of them has opened, (you will see it when it happens) have your windows disk inserted in your cd rom player, and it will overlay the windows system that is already on your drive. This of course will take like a half hour but when you are done all your previous info will still be there.
I hope this works for you, and if you would like more information, or if is works, let me know, email@example.com