Using Paragon NTFS I was able to open and read stuff off my 2TB external disk drives (single 2TB partition), but it takes forever to access the drive - over one minute - and as soon as I connected the HDD the computer slowed to a crawl until it was able to index the partition. Browsing files/folders is also quite slow, but it works, and I was able to copy data to and from the drive.
I also experimented with 500 and 1TB drives. 500GB NTFS partitions load up fairly quickly. 1TB partitions are usable as well, as they don't take nearly as long to access as 2TB ones do, but suffer from the same slow navigation / browsing issue as 2tb partitions - maybe not as pronounced.
I'd say, with NTFS support, you can comfortably use 500GB partitions in win98se, even 1tb ones if you're the patient type.
Under stock win98se the only limitation is partition size, witch is 32gb using FAT32. Installing software that allows Win98 to access NTFS partitions removes that limitation, but partitions over 500 or so GB are slow to read (index?) and difficult to work with. For IDE only systems you also need to take BIOS limitations into account. For PCs with SATA there's compatibility issues to consider - like the fact that most SATA1 motherboards have problems detecting SATA3 devices (or was it SATA2? Someone will correct me for sure) and in some cases Win98 requires SATA drivers to be able to install windows in the first place.
It should be possible to use a single 500gb partition if you split it into 15/16 32(ish) GB partitions, but I personally see that as a pain in the butt.
My advice, if you really want to use a retro rig to store lots of files, install Linux or at least windows 2000 just to make your life a bit easier.
P.S. - I've also had problems with network transfer speeds over win9x networking. It seems to be limited to about 1.5-2MB / second (gross estimate), regardless of what LAN card I used. This limitation seems to apply to USB devices as well, as I've never been able to benefit from USB 2.0 speeds, despite installing USB 2.0 drivers.