You state in first post that XP OME was installed, did it install and run good ? Or did XP have problems right before trying to go back to 98 ?
Besides a possible memory problem , could be a heat problem or power supply.
Might see if XP would install again but use the hdd as is with the FAT32 partition not NTFS. If it worked that should rule out heat or power supply but not memory. Would also say the mother board/cpu/IDE cable/hdd should not be the problem.
IF you do not want to try XP again (I can understand way you might not want to) , might try a live Linux cd. With the live Linux there is no hdd install, it runs off of the cd.
http://www.knoppix.net/get.php
There are other live linux besides Knoppix.
Altho with computers one can never rule anything out, as soon as one does , its what bad.
Sometimes one's children just get to busy with there problems to remember their parents, even on Fathers Day and/or Mother Day.