You can resize partitions with data on it from Ubuntu live CD as far as I know, since it uses GParted to do the resizing. What you cannot do is resize mounted partitions, so make sure you don't open anything on the Windows partition when on the Live CD. To be sure you can issue
sudo fdisk -l
To list all your partitions. Find the Windows 98 one and then
sudo umount -f /Volumes/Partition_Name
For instance, if Windows 98 (FAT32 or NTFS probably) is at
/dev/sda5 you should use that instead of
After that just open GParted on the Ubuntu live CD or download GParted live CD and boot it up. There are a lot of guides online on how to resize partitions with GParted. Here's a quick one.
But be careful. Before resizing the partition you should make a backup of any important data you might have on the Windows 98 partition, as well as have an installation CD in case Windows doesn't boot up after the resize - it'll probably just do a check on the filesystem and boot up normally, but better safe than sorry. Doing a defrag might be a good idea since it's an old OS but it might not be necessary.