Quoting from www.speedguide.net and slightly edited:

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This bug in the installation of Windows '98 is not reported or confirmed by Microsoft, and there seems to be some controversy on whether extracting the VXDs really improves anything. Judging by the hundreds of positive replies we're getting, it fixes numerous problems in the operation of Windows.

Windows '9x / ME does not install some VXD files in your system directory by default, adding them manually has proven to help for a healthy setup with less crashes. To resolve 20 to 50% of the system errors in any Win9x build, extract these VXD files manually from CAB 47 and 48 into C:\WINDOWS\SYSTEM\VMM32 and C:\WINDOWS\SYSTEM. In Windows 98SE, the files are located in CABs 53 and 54.

The following files should be extracted:

vcomm.vxd
vdmad.vxd
configmg.vxd
vdd.vxd
vmouse.vxd
ntkern.vxd
vflatd.vxd

Extract these files and reboot. Your system will love you for it.

To check if you need the VXDs yourself, look in the Driver File Details tabs in your Device Manager ( Control Panel > System > Device Manager ). If you find entries containing 'vmm32', there's a good chance you need to extract these manually. For example, in my Modem Driver details, I had " C:\WINDOWS\SYSTEM\VCOMM.VXD (VMM32) " before, and just " C:\WINDOWS\SYSTEM\VCOMM.VXD " after I extracted the VXDs.
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