Most such infections screw with the operating system and are not commonly destructive to the actual data files or to "structures" (partitions, partition tables and the mbr) on the drive itself. Hiding partitions by setting their formats as hidden or by simply formatting D,E and F as NTFS (not seen by Windows 98) adds an additional layer of protection.
There are destructive viruses that can delete partitions and, worse still, start zeroing a drive so if you are unlucky no data anywhere on the drive is safe. Viruses tend to infect executables because it takes an executable for them to regenerate themselves.
Installing a linux partition rather than Win98 for surfing would be an even better move since there are far fewer exploits that are going to gain entry with such a setup.
I would never rely on WinXP's system restore and would always suggest that important data be regularly backed-up off the computer and that an image of your system partition(s) be made to allow you to easily set your disk up anew. System restore is no good to you if you cant even gain entry to the OS whereas an image file should always be capable of being restored to the same drive (or a brand new on in the event of true HDD failure).
PS Keeping a copy of your mbr (or the whole of the first HDD track) somewhere is another good move - particuarly in a multiboot environment.