CAUTION - This will erase everything on your computer - Back It Up First!
place your windows installer cd in the cd tray.
Boot the computer to the bios (by hitting f12 or whatever key it tells you to go into setup)
Navigate to the boot order options and make it boot from the cd first.
save settings and restart.
when you boot the next time it will boot directly from the cd.
Delete the partition on the hard drive that is 8 gb
use the formatting options to reformat the drive and reinstall windows.
Unfortunately since you are using Windows 98, it requries a FAT32 formatting. This only allows partition sizes up to 124.55gb. So if you use windows 98 with this 500 gb drive, make sure the largest partitions you make are 124.55 gb otherwise they will not show. This is going to leave you with at least 4 drives in my computer.
My recommendation would be to upgrade to windows xp so you dont have 4 partitions or more on your hard drive.