Scandisk in 98 is recommended to be used before a defrag and in that sense something is needed. Now its been a while since i dealt with 98 but if I remember correctly if you go into Dos you can type in the command chkdsk which will then scan your drive for errors or damages. If you type it should give you all the assoicated commands to the function.

We used to use this command in Dos all the time before when Windows came out with 98 the command was changed to say "scandisk" but the base operating system should make it work for you.
Try going to command prompt and typing the "chkdsk" in and see if that will help you. It will put trunkated or damaged files in a file for you usally file000.chk so you can delete as required. Its not as pretty as Scandisk but it is effective.

The other second I will leave to anyone else to chime in on as I'm the one that started the other thread on the updates. So you know I have now found 4 others with the same complaint as you on the XP service packs.