First I've no experience with 98 but here's my thoughts...
I don't ever remember activating it, but that doesn't mean I didn't or that it doesn't need it.
Did you go right to Microsoft's update site or are you trying to auto-update (if it has auto-update?). Try doing the other one of what you're doing.
Make sure you first update java and flash. Also make sure you have scripting enabled in IE. Try to get at least IE 6 because I'm not sure if Microsoft's site supports anything further back...?
Could you be more specific in the error message?