Wow, sounds like you're covering almost everything, and it's still not working.

You might want to try booting into safe mode and check the HID devices listed there. In normal mode, the HID drivers are still "installed" but only show when the device is plugged in. In safe mode, all drivers are shown. Delete all the HID drivers, unplug all USB devices, reboot to normal mode, plug in the Optipac and see it that helps.
Also, Win98se is better at USB than the older win98; trying the se version is a good idea.
FWIW, here's my system:
I have a winME system, with between 3 and 7 mouse devices plugged at a time (one always ps/2, though), depending on what I want to play/test. Currently, my PC mouse is "mouse 1" in Analog+, optipac player 1 TB is "mouse 2", optipac player 2 is "mouse 3", and of course all control "sysmouse".
In winMe, the optipac shows as two HID-compliant mice and one "USB composite device" (this one under "Universal Serial Bus Controllers"). You might want to uninstall this one, too.
When I plug the optipac in, I get three separate hourglasses, at if one for each of the drivers listed above (well, sometimes the houglasses "blend together" so it looks like one or two longer lasting hourglasses). It's best not to move the trackballs until the the drivers are all finished loading.
I plug my optipac into a self-powered (800 mA) 4 plug USB hub.
And on my system, the optipac player 1 TB always is one below the player 2 TB, whether they are mouse 1 & 2, up to mouse 6 & 7.
Not sure if listing my setup helps you any, but if you want to compare any more details, just ask me.
I hope things start working.