Firstly I'll post a quick picture as it will explain some of the limitations:-

It's a 400mhz celeron, 10gb hardive, 256mb ram, network card an TV-out.
Size and access were the reasons I didn't put in a CD rom, I would have had to have a door or such and also after everything was in there I'd have been lucky to fit in a floppy drive.
I do have a network card in the back so installing anything can be done via it. I was planning on using a USB pen to do it but I got fed up of that pretty quick.
A good idea on the external cd rom drive though so I'll keep my eyes open for one as it will be useful for that and a few other things.
As for Win98, I use it on my main Cab and I actually prefer it to XP except for the fact as mentioned i need to keep putting in the disk to install drivers. I'll try putting the cab file on the hard-drive as suggested as it drives me nuts that whenever i put in/re-install hardware it asks for the CD.
Dos is an unknown quantity for me (mame wise anyway) so I would have to learn, aside from that I wanted to get away from a keyboard and try and only use a serial trackball for inputs.
Cheers for the tips everyone, some good one there.