startup -Disk I/O error

Two problems:
Scenario: I repartitioned my 8.4 gb partition to be 30 gigs on my new motherboard since it can see it.
Reinstalled Win98 on it. Then tried installing WIN98SE but said not enough memory. That is my first problem(how to get around the memory problem even though I have 128MB ram and the system recognizes 128 MB?
Second, when tried installing WIN98 SE over WIN98 tried using floppy which didn't respond.
Driver settings showed my 3.25 floppy drive as a 5.25 drive.
So I removed the floppy resources(drivers I guess) from the resource list in Win98.
Did fdisk again and deleted drive.
Upon rebooting, machine says Loading System from Floppy...OK
Then it says Disk I/O error. Please replace disk and then press return. Well I notice the floppy drive turning on when I hit return but it can't seem to read my startup disks which worked and I used before. Anyone know how to get around this?

Thanks much,
-GlenT