Why don't you just try copying the contents of the Win98 CD to your hard drive. Then, run the setup from the drive itself. My CD has a "Win98" folder (which as all the *.cab files, and also a "Drivers" folder.
I'd make a folder/directory on your hard drive (via dos and a bootdisk if you don't have the system files on the drive) Then, use xcopy to copy the folders to this master folder. For instance, I made a folder on my clean hard drive called "Win98SE".
I then copied the Win98 and Drivers folders to the Win98SE folder. Next, I went to the Win98 sub-folder and ran Setup.exe. Give it a shot.
Don't waste time pondering over "why would this work vs. just installing from the CD itself?"...just try it.
If you don't have a copy of "xcopy" available, you can download the freeware xcopy alternative "xxcopy" from
xxcopy.com.
You would use the xxcopy16.exe to use in Dos mode to copy the files. If you do a "xxcopy16 /?" you'll see there is a "clone" switch. This is the easiest to use to make sure you're getting all the files/folders to the destination you want. Let's use an example. Say your CD Rom is drive "D:" and you want to copy all files to the C:\Win98SE Folder. Here's how it would go:
xxcopy16 d:\ c:\win98SE /clone
It should ask you if you want to create the directory on your C: drive. Type in Y for yes. And off it goes...