I've got both Windows 98 original edition and Windows 98 2nd edition install in both Virtual PC 2007 and VMWare Workstation => '98 runs just fine in both environments. Virtual PC 2007 is a better host for '98 unless you need direct access to USB devices -- probably not the case with a '98 system.
'98 installs very easily in a Virtual PC system, and runs very fast ... especially if the system supports Intel's VT (hardware virtualization support). My Windows 98SE OS boots in 19 seconds on an E6850 host (running Vista Ultimate).
If you want to install Virtual PC 2007, use this link:
http://www.microsoft.com/downloads/details.aspx?FamilyID=28C97D22-6EB8-4A09-A7F7-F6C7A1F000B5&displaylang=en The link posted above is not to the current version.
Once you install Virtual PC, simply create a virtual machine (I'd suggest assigning 128MB of memory for '98); then install '98; install Virtual Machine Additions (do this immediately after the install completes); then do the updates (via Windows Update); and then install your program. As I assume you know, you can completely backup the virtual machine by simply copying two files: the .VHD and .VMC file => I'd do this as soon as you get the complete system installed ... then you'll have a fully configured system that you can easily move to any machine by just installing Virtual PC.
I'm don't recall whether Virtual PC defaults hardware virtualization to enabled or disabled for a Win98 guest, but it works just fine with it enabled (the only OS it must be disabled for is Windows 95).