500 meg is a bit light. I'd delete some stuff to free up space (e.g. zap the contents of C:\Windows\Temp and don't forget to empty the recycle bin). Defragmenting the thing might be worthwhile, it probably won't solve the problem but if you're down to 500MB then it will speed up disk access.

Another thing to try: boot the computer in safe mode (pound F8 from the post until you get a boot menu, may have to hold it down from the post but some bioses give a stuck key error if you do that). Then run *full* anti-virus and anti-spyware checks. Oh, and use a decent anti-spyware program. There are a *lot* that pretend to be anti-spyware but do more harm than good. I personally use SpyBot Search & Destroy, but Ad-aware is just as good. Beware of others (especially other free ones), they often contain spyware themselves. Especially if they have a name like "ada-ware" (note placing of hyphen).

Derivative, he said he's running Win98. 98 != XP. In particular, no Documents and Settings folder, and the CD I don't think is bootable (tried it recently and it didn't).