[Scatty]

If you download these Windows 98 USB Mass Storage Device Drivers (since Windows 98 / 98SE doesn't have native USB disk drivers by default) and install one of the two that is the correct one for the Windows version you have (assuming that you have USB ports on this computer), you could use a simple USB stick with 1-2 GB as a semi-HDD to install games on it et cetera.
The USB 2.0 port surely would have faster data transfer speed than the HDD currently on your computer (60 MB/s), but 1.0 might be actually slower than the HDD (1.5 MB/s).

As about partition for Windows, maybe 2-2.5 GB would be better, for the virtual memory on HDD and additional programs.