To dual boot a Win98/XP system you need to:
A) have Win98 installed on the primary hard disk first.
B) Install Win XP on whatever disk, with the machine in it's final config (IE, both drives in place)
C) Win XP will change the boot loader on the primary disk, copying the Win98 boot sector to a file. This file is then used to boot Win98, when you choose Win98 in the Win XP boot loader.
Microsoft document this process on their website.
See here for more details
Yes, this does makes changes to the Win98 system. It is reversable, but you need the correct tools to fix it. Basically, undoing it requires you to write the Win98 boot file back out to the boot sector on the hard disk.