http://support.microsoft.com/default.aspx?scid=kb;en-us;182751&Product=w98

You meet the minimum hardware requirements (see webpage above)
and you have adequate RAM.  My biggest concern is the small
harddrive:  If you are planning to do a fresh install on a blank
harddrive I would say you are OK as long as you don't plan on
installing large programs or large numbers of data files.  If you
are planning to do an upgrade install, you better find out how
much disk space is available first.  Windows 98, by default, will
require _at least_ 120 meg (or more than 10% of your current
harddrive).  You could search the web for 98Lite instructions,
they can reduce the required harddrive space some.

I'd stay with win95 unless there is something in win98 I really need.

While the computer meet all the minimum requirements for win98, my
experience is that win95 is faster and more nible on a computer with the
resources you have