Linux can work well in both wireless or wired mode, the setup would depend on what hardware and version of Linux you are going to use.
You will need a router with a built in ADSL modem, there are many out there to choose from!
To run the Linux/Win98 computer you will need either an Ethernet card or a wireless card installed.
The other XP computer again can be installed either via cable, which you already have Ethernet ports attached, or wireless in which case you will need to buy either a PCI wireless card or a USB dongle.
The PCI modems will no longer be needed if you are using a router.