Yeah, I used to run win 2000 on my desktop and had some games that I couldn't play from the win95 era. So I resized my mom's old windows XP machine and pulled a 2 gig partition out then installed win98 on that. I used the windows disk manager to mark the partition I wanted to boot from as active, so it was completely transparent to my mom when she would need to use the computer, including booting.
If I were going to do a system like this again today, id probably do something similar. An MBR formatted hard drive can have 4 primary partitions. FAT16 had a max partition size of 2gb, but fat32 was introduced in win98 so you could go with whatever partition size you wanted there.
So you could have a 95, 98, ME, and XP installation all on one drive and just switch between them using the drive manager to change the active bootable partition then rebooting.