Running a defragmenter will only make a difference if you are resizing an exsisting partition. If you are going to resize an existing W98 partition to make it smaller so you can add Linux, defragmenting is a good idea.
My suggestion would be to run Linux on a separate disk. I have several systems running combinations of W98, W2K and Linux and have found this to be the best way.
As far as partitions are concerned,
boot - can be small. It doesn't hold much more than the kernal and system map. 10MB should be sufficient. If you do a lot of kernal recompiling and testing of new one's you might make it bigger.
swap - should be twice the size of your physical RAM but never more than 128MB.
others - this varies, you are talking about /, /usr, /opt and /home for most installations. Some people make these all one physical partition. I make /home a separate physical just in case I want to change distributions and not lose any of my personal data. Software you install like Quake or StarOffice will go either in your /usr or /opt partition so you want to make these several hundred MB each. Personally I don't see a huge advantage to creating a lot of partitions for these different directories but that's my personal preference.