This is quite easy. And it doesn't have anything to do with raid .

When you installed Windows 98 on D:, there was no NTFS partition (yet). Everything in the register etc was set on locations on D:.
Then you installed WinXP. You formatted C: to be NTFS. As Windows 98 can't access NTFS (without patching) it is impossible for 98 to see the C:, so the D: is automatically renamed to D:. This means that all references in the register etc are wrong (they are pointing to D:, while everything seems to be on C: all of a sudden).

So what can you do about this?
1. Install WinXP on C: as a FAT32 partition
2. Install 98 on C: and XP on D: as NTFS
3. Try to patch Win98 that it can read NTFS (google helps here), maybe that works (although I seriously doubt that.).

Good luck!