You've already been given some excellent advice so additionally with older machines over time the USB ports can develop electrical corrosion, that may or may not be the problem, but if it is, you can pickup a USB PCI card and see if installing it will resolve the issue.
Just because there's enough electricity to light the web cams LED through the USB port, doesn't mean it will allow data throughput.
However before you spend that money, make sure you've exhausted all the above suggestions, because with Win98SE something as simple to resolve as an IRQ conflict, can bring it to its knees.