Windows 98 is getting on a bit now and isn't as reliable as XP for example. I used M.E. for ages but finally got tired of the blue screen for no apparent reason. I now use XP overall is is an excellent o/s.
I would suggest doing a fresh install and starting from scratch, save all the important files etc and start over.
This is because i used to run 98 and it was always easier to spend 30 mins reinstalling than spend hours and hours trying to fix an unobvious problem.
I would check though to see if a virus is on the pc, if any programs are conflicting or drivers are not up to date.
Word and excel files can take up loads of space, if you can partition the drive and keep the o/s on one partition and then put programs and word files etc on other partitions. It will keep the actual drive for the o/s clean.
You could defrag the hard drive but if it looks like it is going to take a long time i would abort it and do a frsh install.
Hope it helps