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How would you suggest I'd setup 98SE and Linux (Probably ubuntu, but I might try out some others) in a dualboot?
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First, Partition your HDD; you'll want three of them. Make a Windows Partition formatted FAT32, and two that are left unformatted to be used later. Make sure one of the unformatted ones is no larger than 2 GB. Install Windows first to the FAT32 area. After it's done, install Ubuntu. During it's Setup, assign the 2 GB partition you made earlier as Swap, and the other one as Root. Let it run it's course and at the end it will detect Windows and set up a dual-boot menu.
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Does the method work with any linux distro, or does the way to set this up differ between boot loaders
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Very slight differences, but basically the same.
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can you suggest any popular full-fledged distro that works with most apps, preferably one that doesn't use a lot of resources (other that HD space). I found ubuntu kinda...heavy for my oldie. I kinda like the look of KDE...
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If you like the feel of Ubuntu, but want a much lighter version, Xubuntu is made specifically for lower-spec systems. Most KDE stuff tends to be a bit heavy (compared to other Linux Distros), but there are some out there that might be to your liking. It's KDE so it's the same basic feel, but some things are different. If you go here:
http://distrowatch.com/search.php and scroll down about 1/3 of the way, you can select KDE in the 'Desktop Environment' area and it will list all KDE-based Distros.