Well maybe he meant he'd build you a new system out of the old parts and replace the motherboard, CPU, hard drive, etc?
XP is more stable than 98; however, XP won't run some of the games, and some DOS programs won't work with it. I know that the WWIV BBS software was one that got clobbered by XP, but chances are you aren't running that. XP does have a compatability mode to try and run software designed for earlier windows. There is a program on the XP install disk that will check your software to see if any of it fails. You might want to do that first before the change over to XP.
Anyway keep the 4.1 Gig drive, just in case you want to go back to 98, and salavage the information off of that hard drive. Chances are that the XP install will be a fresh one, and you'll have to copy the data files and documents off of the 4.1 Gig drive to the new one and then reinstall the software. Either that or burn all your data and documents to CDR disks before the swap.
As far as memory, it went from SIMMS to DIMMS to DDR memory now. Each one having different slots to plug into, and each one running at different speeds. So chances are you will need new memory chips. The more modern motherboards use DDR memory now, very pricey but fast.