Try in forced PIO 4 mode. If you encounter further errors with any hdd under 8GB size, you probably have broken RAM or on-board cache.

PIO could help if there's a problem with DMA transfers. But does Win98 text mode install use DMA mode? I would have guessed it uses PIO, but I don't know.

Sometimes Windows complains because of old data on the drive that it doesn't understand from other OSes.
Are you doing the slow, full format option or are you using quick format? Try doing a slow and full format if you haven't already.

Beyond that, a more thorough option is to zero fill the drive so there's absolutely nothing on it anymore for Windows to get bothered about. There's probably a few utilities that can do a zero fill, one is 'dd' under linux.
HDAT2 is a good utility for scanning the disk for errors (it's more trustworthy than Scandisk, and shouldn't give bogus errors). It might also have a zero fill option, I don't remember.

I would try with a different PSU.

I've had strange HDD errors when installing Windows, and it sometimes turned out the be a weak PSU.

Might run a DST (Seatools, or whatever) on the hard drives, but chances of them all being bad is rare.

Could also be IDE cable or controller.

Hi all,

I have been quite busy last day so it was not until yesterday I was able to test further. Switching to a different IDE-Cable fixed the issue (I already tried 3 different already but apparently this motherboard didnt like them). Also I replaced the Graphics card as it was behaving weird (possibly this might have been the cause also??)

Thanks anyway for your suggestions!