If the whole point of this venture is to migrate to XP, you should just purchase a load of XP and start fresh. (especially since you sound pretty sure that the Win 98 disk is probably damaged).

The fact that you get no graphical desktop after the b0rked 98 install attempt means that you probably shouldn't bother with trying to work things out from the command line (the "C:\" prompt); the installation was obviously not successful.

OK, do you have an 'Upgrade CD' version of Windows XP?

If so, you can use it to perform a fresh, clean install of Windows XP.

See this article for instructions:

http://www.daniweb.com/techtalkforums/thread6632.html

Note that you will need to insert your Windows 98 CD when prompted during the procedure, to verify your 'eligibility' for using the upgrade version. Windows XP will not upgrade from Windows 95!

Note also, that your old Compaq laptop may not be suitable for use with Windows XP. Check the download drivers section at www.hp.com to see if there are Windows XP drivers for the system components in your laptop. If there are no Windows XP drivers, try any available Windows 2000 drivers instead. Do NOT use Windows 98 drivers!