Disable any unneeded background apps w/ msconfig or other startup
manager. Windows Messenger is notorious from nearly the beginning.
Then see
http://www.fixyourwindows.com/ and do all the
optimization steps there. He mentions blackviper's site, which has free
.reg files to turn off all those unneeded services running in the
background--highly recommended.
Turn off hibernation.
After you turn off system restore, use ERUNT on a
schedule for registry backups.
http://home.t-online.de/home/lars.hederer/erunt
Finally, use XPlite to get rid of much bloat. I think there's a freeware
version.
Now that you've bought an extra HD (everybody needs one), use it as a
backup drive. Get a good imaging program like Acronis True Image or Ghost
9.0 to make images of your C: drive on your new D:. Then use a program like
SyncBack to make daily backups of your Documents and Settings/User.
As for Win98, just run that in a virtual machine. Get VMWare or Virtual PC
for the purpose. No need for any extra partitions and dual booting etc.