Partition magic works best if you boot to the partition magic disk. insert the disk, then restart the computer, and hold f12 to access the boot menu, or change the boot order in bios. You need to be extremely careful not to destroy your XP partition, I would back it up first.
You might be happier downloading virtual PC (free) from Microsoft and running 98SE in a virtual machine. It doesn't require partitioning, and both OSes can run together.
Also, it's best when dual booting to install the oldest OS first, as 98's boot loader will not recognize XP. You may have to get a third party boot loader if you add 98 to a new partition.