You cannot format a volume that is in use. Period.
If you want to dual boot then the first thing to do is create a partition for the new OS. Use Part. Magic for this and to format. Install Win98me (?) on the new partition. At this point you will not be able to boot into Win2K. Boot from the Win2K CD and select the repair option, manual, repair boot sector. Now you will be able to select the OS at boot-up.
There are numerous tutorials available on the web that give more detailed instructions on dual booting. Do a Google search.


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are formatted FAT32. All the others are NTFS. 
