The only other issue is a jumper or cabling issue. XP natively can read a FAT32 filestore or lower, and any NTFS volume, although there could be permissions issues in this case.
Honestly, what you are trying to do is perfectly possible without issue and sounds more and more like a cable/jumper issue. Some things I have found as "gotchas":
. if the original drive is Western Digital, they have an odd jumper configuration where you have to identify it is either Master or slave in a dual drive configuration. The standard Master/Slave jumpers are for single drive configurations;
. if your IDE cable chain is straight-thru, which is common for modern drives, you need the older ATA33 crossed connection jumper at times. Add the drive on the secondary IDE channel as Master on that channel, using the original Win98 cable. Transfer the contents, and replace with the new box cables your CD Rom that used to occupy that space.
This is not a Windows issue per se. It is a hardware issue. And if you repeat the problem as a new thread in forum751 with the exact make and model # information I think you can get this resolved.