As far as Win2K, it really depends on your 98 build. If your build is relatively stable, then no. However, if you find the blue screen of death coming more frequently, then it is definitely worthwhile. You will also see a slight performance boost--especially if Win98 is hogging your memory.
There are a couple of other tricks to getting PS to behave: If you have two drives, set your PS scratch disk to second drive.Reduce your image cache. Set it to 2-3 rather than 8. Also reduce your image size or color space if you can.
There are many more tips at Optimizing Performance in Photoshop for Windows . Good luck with you machine...