Is the RAM completely locked in? It sounds like it might be sitting a bit loose. If you're locking it in tight but it's still happening, there could be something wrong with the RAM slots - if your friend can, try sending it back and getting it replaced.

As far as the OS situation goes...trash 98. No good can come of it, especially with new hardware. What kind of thing does he want to do with the computer? If it's gaming, try and get a copy of XP. See if you know anyone you can bum a copy off of, or failing that, hit up the torrent sites. If they just want standard desktop applications, try a Linux distro (I recommend Ubuntu).