I normally wouldn't recommend this, but in your case, seems like you are getting the shaft from an OEM vendor who thought it prudent to give you a restore CD rather than the full install CD that you most likely paid for:

Ask around to a friend, relative or neighbor for a Windows 98, ME, or 2k CD that you can borrow just to get your XP upgrade installed. Once you have it installed you can give the CD back. It only checks the CD for authenticity and then you don't need it anymore.

That is what I would do in this situation, if possible.

If that is impossible, you could sell the XP upgrade, and purchase the full OS. Or you could go out and pick up a second hand windows 98 CD for around 30-50 dollars US.