Because Windows 98 is fundamentally different than the NT based OS versions about the only thing I can suggest is that you develop a prototype and test it. As you mentioned Windows 98 is supported by the .NET Framework, but the extent to which certain features are available is going to be limited by the architecture of the OS. However, I'm not aware of any issue specific to Windows 98 that would prevent the click once and smart client technology to function.
I do know that the UAB (Updater Application Block), which is to be replaced by ClickOnce, is not supported under Windows 98.
Microsoft MVP (Visual Basic)