Sorry, I was answering your new question. You can install 98 onto a system than has ME if you format the HD.

So far as the original question, If you copy all the files from a working installation of 98 onto a blank hard drive, it probably won't work. For example, you'd still need to install a bootloader into the MBR. And if you're actually booted into 98 when you try this, Windows might protect certain files from being access and copied, so to be safe I'd guess that you'd need to be booted from a THIRD media (maybe a Knoppix CD) to do the transfer. And you're likely to miss all the hidden files when you do the copy, a lot of which are system files, read-only, etc. I don't know if Windows internally keeps track of things like the size of the partition it's been installed to. I do know that it internally keeps track of a lot of hardware settings, and I don't know how many of those will be dynamically reconfigured if you drop the whole OS into a foreign system. All the drivers for all the hardware will be busted and will need replaced, unless the new hardware is exactly like the old hardware on the system on which 98 was originally installed. I have a hard time imagining Windows surviving something that drastic.

What's wrong with ME? It's basically exactly the same as 98, other than looking slightly different and being more prone to crashing, but it also has better native support for more hardware (I think), and some other crap someone somewhere might like. If you cared about things like not crashing, I doubt you'd be using Windows in the first place. 98, ME, same bunch of crap, in my opinion.