Pigood,
Without going deep into the many different things that could be happening I suggest you use the WinME defrag tool instead. It is 5 times faster than Win98's defrag tool.
If it does not work as expected then run it in Safe Mode.
If it still does not run then post back advising how long you waited for it to run and any other observations.
You can get the WinME defrag tool from <a target="_blank" href=http://www.mesich.com/defragunzip.html>Here</a>.