I'm using 98SE on a P!!! 1ghz w/ 512mb.
You are correct in that 98 doesn't natively support USB 2.0
What I did was purchase a USB 2.0 PCI adapter card [I have 3 all made by IOGear] and a Sandisk 6 in 1 USB 2.0 writer/reader. This is primarily to read and write to my CF cards for digital photography.
If you can, I'd also suggest a program like ACDSee for picture viewing and I actually use it's FotoCanvas [photo editing] more than Photoshop!
I've been told in other computer forums to avoid VIA based USB 2.0 adapter cards b/c they are "flaky". Luckily my IOGear uses NEC chips instead.
On a side note, I thought about getting something like the Adapter USB 2.0 and Firewire combo card. Looks great on paper but it requires something like 5 IRQ's!!!!
So if you disable both of your COM ports and your Printer port, you'll give yourself or free up 3 IRQ's. Just get a USB printer, scanner, etc....
Personally I did find Win98SE to be more stable than Win98 even with Service Pack 1 but YMMV.
Sorry to plaster all this info onto you like this. I hope I've shed some light for you.