I have a Windows 98 Second Edition computer I haven't updated to Windows XP that can connect to a Windows XP machine (the primary machine for me).
I don't use a switch, I don't internet connection share. Both computers are stand alones (clients, no host, no server).
I connect via netbios. If you notice in XP they don't install that driver. If you want to be able to connect an XP and 98 machine via a hub you need to install the netbios driver on the xp cd.
Go to the valueadd/msfg/inet/netbeui, then copy that inf file to the inf directorym, the nbf.sys to the system32 folder. Then go to network, properties, add drivers/protocol, netbeui. That is it. You should now be able to connect you win98 and xp machine.
Of course make sure you take precautions to safeguard the network as I don't list that information here. It seems like everyone has their own way of doing things and in some cases is unique to your machine and its software.
hope this helps.
Saber