And you try to boot what OS from CD exactly? If it's Win98, then just use the boot floppy disk that comes with it. Actually, booting from the Win98 CD will do the same thing anyway - it starts from the boot floppy disk image stored on the CD.

i've burnt new installation CD

And you don't use the original CD because..? If you burn it, you must create a CD that follows the El Torito specification, otherwise it won't ever boot on any PC. However, if the disc drive is often not detected by the BIOS, you have a hardware problem none the less.

I have original bootable win98:SE disc and the same. Plus I prefer to not use original discs, is it illegal? And I have no idea how to fix it..

Replace the disc drive or use the boot floppy disk.

I did, and in such way it works but 10GB HDD is detected like 500MB.

Ok, I didn't give up. I noticed detecting of disc drives still freaks out but HDD was set incorrectly. So can I replace 10GB HDD on 16GB CF card or too big for windows98?

Detecting 500MB for a 10GB hdd on a pentium system is odd. Normaly this only concern earl 486 systems. Did you disable LBA ? Check that, and if it is, re-enable it. Or try to tell your computer to properly detect the new hdd, maybe the previous owner did set his bios for a 500MB hdd.
Next, nothing's "too big" for windows 98 (or maybe you need to update something for it to work, can't remember, but anyways, that's not a huge dead), however the BIOS can have some limitations as well as the tools you can use to format the disk. But that normaly only concerns HDDs bigger than 32GB.

Also, old CD drives tend to not like burned CDs. Use an original CD-Rom or try to burn your image with the lowest speed your burner allows you to use.
Or just boot a windows 98 floppy disk, use fdisk to create partition, reboot, type "FORMAT C: /S", then turn off the PC, take the CF card a modern PC and copy all the files found in the "win98" directory (from the CD-Rom) into a directory of your cf card. Finally, bring the cf card back to your pentium, turn it on, then go to the directory where you did copy the files, and type "install". That should do the trick 😉

I fixed that, this BIOS still requires to set HDDs manually. Thanks for help. 😀