Yes that's doable, tho not a development box as it would be short of spcae. Okay for a desktop system. It would be best to use both drives and put your root / partition on one drive and the /swap and /home on the other... If you want to keep win98 on one partition, then you are pushing the limits, tho I've installed MDK 9.2 on a 2 gig drive. Doesn't give you much room for swap, which you will need with just 64 meg ram. May be possible, but leaves you with limitted applications.
64 meg of ram will run, even KDE, but will swap a bit, so you need more swap space. 128 is much better and you can find cheap ram to suit easy enough...
Finding a good drive under 32meg for the right price is harder... But finding an 8 gig drive would be a big help
What speed P2 by the way? Linux will run on any P2 okay anyway, just curious. I'm asuming a 350 as they are so common...