First off, are you booting from same HDD? Have you tried running any chkdks from XP?
Most likely you have removed something that is needed by Win98. Can you press ctrl+alt+delete when your desltop appears? I havent used Win98 in a bit but I know that in XP you can do that and then run a new task from there. If you can do the same in 98 try running SFC.
Can you get into MS-DOS, I think sfc can be run from there. You will need your Win98 CD or to knwo the location of the CAB files on your 98HDD/Partition (usually C:\Windows\Cabs - or \options\cabs I think, sry can someone post actaul address of cabs files plz

)
You may have to reinstall 98. Hopefully not.