I'll stay away from MS bashing here and give you some tips...
Overall, I'd recommend taking the computer to a local shop and ask them to look at it. Backing up and wiping the system clean is standard practice for Windows, unless you REALLY know what you're doing.
Backing up your My Documents folder and e-mail should be a top priority. To find out where your e-mail is located, boot up Outlook Express and go to Tools->Options->Maintenance->Store Folder. Note the location of the folder, then shut down OE and backup all the DBX files you find. If you need to restore after a re-install, create a new Outlook Express identity
FIRST, find out where the store folder is located, shut down OE, then copy your e-mail backup into the store folder. The messages should show up the next time you boot OE. The Import/Export features on the File menu are preferred, but doesn't always work (don't be surprised -- Thunderbird isn't much better in terms of importing and exporting).
My biggest beef with Win98 is that if it crashes, your hard drive can get corrupted, and scandisk won't always fix it. I had a problem once where the drive was corrupt, and emptying the Recycle Bin trashed half the drive! Many weird problems are not spyware but "natural" deterioration of the drive. Upgrading to XP and the new NTFS filesystem will make your drive
very resilient to data loss, since NTFS has many, many fault-tolerance features designed to protect the filesystem from both OS and application problems.
If going to XP, I'd recommend a hard drive and memory upgrade. You don't really need more CPU power, as XP is only slow if you have lots of 3rd party software that loads at bootup.
2. Use Mozilla Firefox as your default browser. My god, i cant start to tell you how much crap get into your computer by using internet explorer and the like.
If you have ActiveX enabled by default in IE, you'll get bugged by spam but you shouldn't get viruses and the like. Still, Firefox is very, very good replacement these days, if you can tolerate the random crashes.
Using broadband i woulkd recommend a hardware firewall.
A broadband router with a firewall is a MUST for any home with more than one computer. Raw DSL and Cable is spam waiting to happen.
In addition to the other suggestions, I would suggest defragmenting the drive.
Yes, but you should invest in a real defrag solution. The defragger for Win98 demands complete defragmentation (no padding between files), which can actually make your system slower in practice. That's why Be never came with a defragmenter -- it was built into the filesystem and automaticly padded files. An old copy of diskeeper is cool, but you're better off upgrading to XP and a new, super-fast hard drive.