I use Windows 98 on all my cabinets, but that is because I don't like wasting good ram that isn't needed, and I have about a zillion windows 98 licenses and like one XP license.
Also, Windows 98 is rock stable if it is just a fresh (minimal) install, ONLY the latest drivers (install the latest, don't do the old ones and then update), and Mame. I really can't recall ever having Windows 95 or 98 crash on me in a cabinet environment. Although I have had Mamewah crash on me.
Also, if you are going the windows 9x route for a cabinet that is just Mame, then Windows 95 is fine too. It needs less RAM, OSR2 is slightly more stable than 98 or 98SE is, and it still lets you use Windows Mame and (I think) all the major frontends.
Windows 98 is not limited to 384 RAM. But plenty of computers that were coming out around that time were limited to 256 or 384, thus the myth about that started.