Another thing to add, I think for that to work, you must force windows to log on to NT network domain. Its somewhere in your network properties area. (sorry I cant remember!) Information is free....dont hog it!
If this is a domain, you can set a policy on the server which forces win98 users to log on (they can still get in via safe mode - if they're determined - you can also disable the safe mode menu - setting in msdos.sys - can't remember which one, but could probably find with Google).
I think you are looking for the proper windows networking way to do this, but heres what I know about keeping people off the machine at boot up. I tried this and it has a password lock in the MBR at the bios boot level that I imagine would be hard to get around... It's here
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