I have since wiped the drive and installed a 8.64 GB (whatever the DOS max
is with a 98 SE boot disk) FAT32 active primary partition but it didn't
help. I could boot from it, but only in DOS, and I couldn't install XP on
it. The only difference was that the STOP error involved SETUPDD.SYS and
not NTFS.SYS.

You can make partitions much larger than 8.64 GB with a 98SE boot disk.
I think it can go as high as 60G+. Make sure you select large disk support
or else you are only using FAT, not FAT32.