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NT Server security will block access to the network. Aside from using the BIOS password on Windows 9x machines, there are few ways to prevent access to the local drive in Win9x.

To trach user activities, go to http://www.iopus.com/sam.htm.

007 Stealth Activity Monitor (SAM) is a new, award-winning, easy to use surveillance tool to monitor the use / abuse of PCs: It logs keystrokes, user name, passwords (!), path names, access times and windows title of the active application (This includes the names / addresses of visited websites for almost all available browsers !). The information is stored in a password protected encrypted text file.

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There is a way you can edit the registry to force users to log on to Windows 98 with a valid account only. It's described here:

http://registry.winguides.com/display.php/629/

Delet any spaces when you copy and paste that url.

As for tracking usage, I also recommend the program cited above.

I have the exact same setup the you want to setup (win9x machines logging on to a network to validate the password and if it dosnt get validtaed on the network then they are denied access to the computer [not only the network]).
The way its setup is:
1. In the NT domain controllers make sure you have a user name for each user that is going to need access to the computer.
2. On the win9x machines make sure that in the network properties the primery logon is set to "client for microsoft networks"
3. On the win9x machines make sure that in the client for microsoft network properties (you access it in the network properties) the check box "Log on to windows NT domain" is checked.
4. Create a system policy on a win9x machine using the system policy editor that comes in the win98 resource kit (for instructions on how to install it install the resource kit [its on the win98 CD] and then search for policy editor). And save it in the net logon share on all your Domain Controllers (the default path for the netlogon share is "c:\winnt\system32\repl\import\scripts") with the name "config.pol". Please note: a) In order that it should work on win9x machines it has to be created on a win9x machine b) Than it has to be named "config.pol" (not "ntconfig.pol").
5. In the policy make sure that must be validated to access windows is checked.

I run a computer lab at a research center. We have all Win98 machines locked down with system policies using the same procedures as stated above. (All users authenticated by NT Server in order to log on)

For tracking, I use a program by Applied Logic called Find-Out. I use it primarily to track usage statistics such as log-on hours and applications used. Another nice feature is network support so all reports can be sent to one workstation.
Their web site is http://www.alcsoftware.com/FindOut/