Windows 98 is now over 7 yrs old. First check that your machines are W2K/XP compatible (see MS' Catalog page).
I would go for Windows XP if the machines will take it (<3yrs old).
Also I would go to Windows 2003 Server rather than w2k, the differences are small (IIS 6, VSS, Clustering are biggest differences).
Planning and a good design is paramount before starting anything like this. Get as much info about your existing setup as you can, see what can be migrated to what W2K or XP.
There is loads of docs on Active Directory on MS site so read those if going for a domain (I suggest you do, rather than a workgroup).