That message does what it says on the tin: it means that you don't have enough hard drive space. Time to do some clearing out of old stuff to free up some space - or treat yourself to a new hard drive.
That has got to be wrong. If your disc was Mb's, yes, but not Gb's.
When you loaded Win 98 did you enable large disc support during the early stages of the setup? If not this may be affecting it. In My Computer right click on the C: drive, left click on Properties and see what capacity it reports.