If you want to start afresh, I would personally recommend getting a new hard drive. They really aren't expensive, and they are really big (the smallest you can get now is 80GB). That way you can have a brand new install of Windows and still keep all your old files with a minimum of fuss.

Otherwise the only option would be to clean out your hard drives manually. A good rule for deleting things is "Has it been used within the last month?" - if not you probably don't need it.

Windows XP is a better OS than Windows 98 - that's a fact, not my personal opinion. Unless you have severe software or hardware incompatibilities with it, you should use it as your prominent OS. I know that you have personally had problems with it in the past, but maybe if you did a clean install on a clean hard drive it might work better for you.

Is it possible that a virus (activated from a bad Word document) is causing the crashing? You should do a complete virus scan with updated definitions. What version of Office is it?