First be sure that either your Windows 98 CD is bootable (they seem to exist) or that you have a boot diskette that enables you to run a program (setup) from the Windows 98 cd. And that you have all necessary drivers for your hardware on diskette, on CD or on the hard disk.
Then make a copy of all data you want to keep from the Windows folder (such as your e-mail, Internet favorites, special fonts) and Program Files (such as a custom made normal.dot). It seems to makes sense to copy \windows\inf also, because it might contain drivers you don't have on CD, but I prefer the original.
Then boot into MS-DOS and use deltree command to delete both Windows and Program Files folders (use the short filenames or the long one enclosed in quotes).
Then boot from the boot diskette and install Windows again. I don't think setup will propose to use a folder windows.000 for that, but if it does reject that proposal and make in windows again.
This seems a nice time to do a full defrag.
Then install the drivers for the hardware Windows didn't yet detect. Then install anti-virus (and firewall), install your Internet-connection and visit windows update for all security patches. Then update your anti-virus, and do a full scan.
Then install all your application programs (from CD or the Internet).
This way you will be able to save all your data (including music and photo's) you don't have on a backup medium. But I would advice to make a backup of those as soon as possible, because you might be able to recover Windows like this and keep your files, but you WON'T be able to recover from a hard-disk failure and keep your files. As Bob Proffitt uses to write: a hard disk is temporary storage only.
Hope this helps.
My Windows 98 SE has become corrupt (some critical files) and I must re-install it. I wish to re-install without formatting the hard drive. I have heard of a way to do this without formatting, but I don't know how (this is a feature available in Windows XP).