Message SU0168 in Setup

Back up what you can and then
Format c: /s
and start again.
Good Luck!

The type of installation disk you have is designed for use on a new computer. If you want to reinstall it (which will overwrite all your default settings, program settings, and indeed you will almost certainly need to uninstall then reinstall your programs after installation), try the following

1 find all instances of WIN.COM. To do this from the DOS prompt type:

cd\
dir /s win.com

This will list the full path to each copy of win.com

rename these to win.xxx

Rerun setup.

That should work. If not you may have no alternative but to reformat.

Type
setup /d
at the MS-DOS command prompt.

When you use the /d switch, Windows 98 Setup does not use the current Windows settings in the Win.ini and System.ini files. If you have programs that write information to these files, those programs may not work correctly after you install Windows 98. It may be necessary to reinstall your programs.

I reckon you have an OEM version of Win98 - it won't allow an upgrade.
If that is the case, a clean install is probably the best way to go, after a thoughtful backup of all things. Don't forget to export the address book, favorites (or bookmarks)and even the e-mail messages and then back up. Do an audit of what software is on the machine, and then tick off what software has been used in the last 2 months. If you haven't used it in two months, you probably don't need to re-install it.