I would recommend that you find another drive to install 98SE onto, making that one your first primary drive, and making your 95 drive a secondary drive. You get a clean install of 98SE and in the process offers you the option of migrating your 95 apps and settings to the new 98SE drive.
I have found that installing Windows over an existing Win system dosen't work too good, as I experinced with upgrading Win98 to Win 98SE upgrade CD. This worked for me.I also found out that it is easier and faster to install Win9x fron another HD, with WinME you end up with a copy of the install Cd you Windows dir as options\install, you never have to use the Wincd again!.