OK. I just dug out my old FS98 CD & installed it to my brand-new machine complete with WinXP. After running FS98 to adjust the settings I had a quick flip round Meigs before installing the Patch & Converter. Everything worked as advertised so I don't think your problem has anything to do with WinXP.

Both files were downloaded from Simviation here.
http://www.simviation.com/fs98utilities_ess.htmPlease note that I installed FS98 to the default location & ran both updates from the same drive that FS98 is on. If your FS98 is in a different location or on a different drive the auto-install programs might have problems finding it. I hope this is some help as I'm not familiar with WinXP just yet & it's all I can think of.
FS98 will run well enough without the Patch installed (I was never exactly sure what it does anyway) & not having the Converter is a minor inconvenience which can be overcome. It's obviously best if you can install both updates but not essential to use FS98.