XP will run fine depending on how good your hardware is you really want at least a 1ghz+ processor and 256MB ram and all hardware to be pretty recent (less than 2-3 yrs old) but don't upgrade do a clean install. Windows 98 does not upgrade properly to Windows XP - clean is best. I would remove the second drive just for peace of mind, the phrase 'human error' has come about for good reason and we can all click the wrong thing.
You might also consider dual booting.