|What ijack said, but only OEM versions of windows 98 CDs are bootable, Retail versions of the installation CD are not bootable.|
Having a bootable iso file or actual CD will allow you to boot to it's DOS command prompt instead of the one on the floppy where you now WILL find setup.exe when you try to execute it and it will then access the .CAB files in the WIN98 folder of the CD where your installation files actually are. They are the collection of .CAB files proper. They are not on the floppy. So instead of 'bad command', Windows 98 starts to install itself.
Alternately you can copy the contents of the WIN98 folder to the emulated hard drive and run setup.exe from there just like we used to do with the floppy that loaded the CDROM drivers to access the CD with to copy the .CAB files to the hard drive to do the install from there. If you make a folder hierarchy exactly as c:\Windows\Options\Cabs and put the .CAB files in there and then run setup from there, Win98 will always have the CD files to access when wanting to add any further widgets (wordpad, Paint, etc) from the installation CD - it saves you having to have the CD when installing drivers for example too. Other locations also work like c:\Win98, but 98 is looking for the installation files to be at Windows\Options\Cabs as written/shipped and this can be changed in the registry if you know where, but it's easier to just play the game by their rules and have it done their way with no further fiddling required by you.
With some trickery one can add the bootable files to the retail version of installation CD and use it that way as well. Boot files can come from either an image of the floppy you are already using or steal the boot files from the OEM version. Last deal is sort of why do that though, retail version wasn't any different from OEM version so just get the bootable OEM version which has the added powertoy folder where you will find 98 version of tweakUI as a bonus. Second Edition was a bit better than the Gold version or first edition, having a better hardware base of drivers for it. Some programs just would not run without the Second Edition version, so try for 98se if at all possible.