Perhaps a clue in only being able to form an 8gb partition?......... I imagine that stopping at the BIOS section is an "intelligent" response to show that the settings there conflict with the hardware. It may be that the HDD is not correctly described.
If I was stuck as you seem to be, I would have to consider starting over again.
Run Fdisk, be sure to accept FAT 32 (Large disk support) and examine the existing partition information.
Then start again by removing any existing partitions until the information tells you there are no partitions there.
Next, (one step at a time) make a primary DOS partition and set it active,(but very important - If you want more partitions then define the size of the primary one).
Then make another (extended DOS) partition using all the remaining disk space (unless you want a third partition.
Look at partition information again and it should show C: as primary active, and D: extended DOS plus any other partitions you have made.
Now you will have to leave FDISK and run format for each of your partitons, and hopefully be ready for another new installation of 98SE