Why hasn't anyone made a FreeDOS port for the XBox? It's open source, so it should be possible. If FreeDOS can be installed on the XBox, then it can be updated with the proper hooks for 386 enhanced mode, which means it would be able to run Windows 3.11. If it could run 3.11, it might be possible to replace the Windows 98 DOS files with FreeDOS files (which is possible, you can make Windows 98 use Millenium DOS, as well as custom versions of DOS). If you could replace Windows 98 DOS with FreeDOS, you might be able to get FreeDOS to intercept any calls from 98 to scan the PCI bus, and return a response it wants.
It would be nothing at all to create a FatX driver for FreeDOS, and USB drivers exist for DOS.