Hi - I can start in safe mode but I get the same error.
First thing to try is to restore the Registry to the date JUST PRIOR to when the
problem started.
To boot to DOS and restore a previous Registry:
-Start the computer and hold down the CTRL key till the Windows 98 Startup menu
(boot menu) appears.
OR
- Repeatedly tap the F8 key after the memory count to bring up the boot menu.
-Use the arrow keys to select "Command Prompt Only" and press Enter.
-Type the following and press Enter after each line:
smartdrv
scanreg /restore
Follow the prompts and select most recent rb###.cab file dated prior to the problem.
The backup files will be listed in rb###.cab format, and dated. The ###'s in the
file names won't be in date order. Don't use the one named rbbad.cab. Don't
restore a backup dated more than a couple of weeks old.
If that does not fix it, do the procedures here:
Recovering From a Failed Internet Explorer Upgrade in Windows 98:
http://www.cs.bsu.edu/~gjjones/administrivia/stories/2003/03/21/recoveringFromAF
ailedInternetExplorerUpgradeInWindows98.html
or
http://tinyurl.com/r5ba
Especially this section at the end:
"If you still have boot problems after you reboot, you should use the command prompt
to edit the c:\windows\system.ini file. On the command line type: edit
c:\windows\system.ini.
"Once it is open, change the line shell=explorer.exe to shell=progman.exe. What you
are doing here is changing the default shell (that is having problems) from the
Windows Explorer to the old Windows Program Manager shell." Press Alt, F, S to save
the changes, then Alt, F, X to close.
"Reboot Windows. It should now successfully boot with no errors into an empty
Program Manager shell. Use the File | Run | Browse drop down menu selection to
browse to c:\program files\internet explorer and launch ie5setup.exe or ie6setup.exe
(depending on what is there)." Do a minimal-custom "install and check all the Bold
faced options. When the setup program alerts you that these files are already
installed, tell it to reinstall all of the files."
"When the Internet Explorer Setup program is done and reboots, hit the F8 key to
bring up a Boot Menu. Choose Command Prompt and boot to the command prompt. Once
there, type edit c:\windows\system.ini and, once it is open, change the line
shell=progman.exe back to shell=explorer.exe. Save and exit the file. You have now
set the shell back to the original value."

Signature
Glen Ventura, MS MVP Shell/User, A+
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> Hi - I can start in safe mode but I get the same error.
>
[quoted text clipped - 10 lines]
> > > due due to explorer.exe file being located in the root folder. This is not
> > > the case. Any ideas?