Your problem is the OS' 98 SE doesn't know that XP exists. have you tried using a briefcase to share files with? that should work. There's a whole different Architecture between the two OS'. I suggest you check out
www.TechTV.com they can help you do anything you can think of. Without spending money there's not too much I can think of.
If the computers are directly connected then a Firewall shouldn't be the problem.