Windows 98 can be used as a client but the security relationship between it and a server with an NT core is far different to the way Windows 2000 and Windows XP (Pro) works with an NT server. I say NT because windows 2003 is yet a further development of this technology, just as Windows 2000 Server is.
In order to enforce solid security on your client machines, I can not recommend installing an NT version of windows on them as apposed to using Windows 98. Yes, 98 can log onto an NT domain (such as that managed by Windows 2003 Server) with username and password authentication plus execute log on scripts, however, policy enforcement (for many things such as disabling the Control Panel and restricting the view of drives in My Computer) is difficult to implement on 98 unless you're familiar with powerfull old tools such as System Policy Editor; but this is getting complex when improvements have been made my Microsoft to make peoples jobs exactly like yourselves far easier.
If you install either Windows 2000 or Windows XP Pro on your client machines, then they will work most effectively with Windows 2003 Server and will make your job far easier.
10 CAL (Client Access Licenses) means that only 10 computers (the clients) at one time can access your server. This applies whatever the OS - be it 95, 98, 2000 or XP Pro/Home to take examples.
If you want any more info just ask - I know lots, lots more about this but I don't want to bore you.
Actually, I can not recommend any book better for this than one from William R. Stanek's 'Administrator's Handbook' series : Windows 2003 Server Administrator's Handbook. If you click here and checkout the blurb about it at Amazon.co.uk and compare it with others, you'll know what I mean. I've had all Stanek's NT 4.0 Server and 2000 Server handbooks and I know they're _very_ good for new administrators and network managers. They tell you everything about what you need to know regarding backup, account management, data storage etc.