I had the darnest time establishing a MS Virtual PC instance using the MSDN copy of Windows 98 SE. The Windows XP and 2000 bootable CDs prompted me during installation while Windows 98, living in a subdirectory and not bootable, just kept throwing errors. Finally, I came up with the following:
1. Obtain a Window 98 boot disk (I ended up using Bootdisk.com). (A little scary from a security aspect, but I needed to get this done)
2. Boot from this disk normally until arriving at a command prompt
3. fdisk the virtual C: drive
4. format the virtual C: drive
5. copy the Windows 98 installation directory and files from the CD onto the virtual C:
6. execute setup.exe from the directory where you just copied the files
BTW, it would be an improvement if Virtual PC MSDN would include vanilla installations for all the MS operating systems. Windows XP and 2000 are straightforward but Windows 98 is tricky and they all consume quite a bit of time to establish. A fat DVD containing vanilla instances would be tight.