Reading MS article
http://support.microsoft.com/kb/225497/en-us
leads me to guess your USB drivers are likely being loaded into low memory, make them load into hi memory might solve problem.
Might take a look at this article on running 98 from CD, might give you an idea.
http://www.lachiesadicristo.it/w98cd/page1.htm
{to which I reply "Keep on hackin" } Happy learning.