The easiest way to "reformat" with windows xp is to just stick the cd in the drive and boot to cd. Gotta have recent hardware for this to boot, and you may have to look at the boot device order in the bios.
If your bios or cdrom doesn't support this, google for a floppy image you can use to boot up with. You'll need to find one with formatting tools (fdisk/format) and a cdrom driver if you plan on accessing a cd.
When booting to cd, you'll be back in the familiar MS-DOS style setup program. In there, you'll be given an option to reformat. I haven't played around with the home edition, but I think the professional edition doesn't even give you the option to format to fat32 - it's all NTFS now. NTFS has it's pros and cons, so you may want to look at these before reformatting - I personally have done well with it.
If this is too overwhelming, try just installing the operating system from within win98 directly. Sure, you'll have the shame of a dirty OS :P but it'll get the job done.
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