If you are familiar with the Windows XP Repair install option, you probably know that you can often restore a damaged Windows XP installation to a working state without losing data. Windows 98 has a similar, but fairly undocumented/unrecognized feature. To restore the critical Windows files, but leave your data intact, do the following:
Insert your Windows 98 disk and boot using a Windows 98 boot disk. At the command line type SETUP /pf. Then press enter, this will run a restore version of the default SETUP program.