Sounds like your file system will be FAT.32 so you might not have to re-format the hdd although that is a good idea. Are there any files on the hdd which you need to retain:-?
To install Win.98 (and you must have the full O.S. version cd which may or may not be bootable) I recommend re-formatting the master hdd using a Win.98 bootdisk (Bootdisk.com) then installing from your Win.98 cd.
I'm not familiar with the Vaio so don't know if you have a floppy drive or not, you didn't respond to that.
Here is the MicroSoft article on Fdisk & Format.
Here are instructions on installing Win.98.
Get back if you have any queries, please ensure you post any error mesages which are displayed.
Good luck