Again, that sounds like a ram problem if your short of it.
Windows 9x needs less to operate steadily than xp.

Windows 98 se needs a minimum of 64mb to run, but Windows xp needs minimum of 128mbs.

You are running on the borderline for your ram, pretty well all your applications will be running on the page file only. This will cause a slight loss in stability.

You mentioned before about your ram 'filling up' Its kinda works like that yeah, only your system is pretty well full before your start filling it up!
It uses a defined amount of your hdd. The speed differance between your ram and hdd is massive, hard drives are much much slower.

You will see huge improvements with more ram