Wow.. this has been a busy thread.. I'm glad you got it working, here's a few pointers though:
You can install a client in your network neighborhood properties called "Client for Family Logons" or something like that, and change the "Logon Manager" dropdown box to that. That will get rid of the Network logon boxes at startup, w/o comprimising windows 98's security (*caughLOLcaugh*)
The software firewalls won't do any good, they'll just cause you more problems than anything. If they are set to "internet zone", then it will reject any incomming request. If they are set to "trusted zone", then they will reject any incomming request except for file transfer. Your router will reject any incomming packet, no matter what it is, from the internet, unless you specifically requested it, ie: asking for a webpage. (or changed the router's config).
You may consider upgrading from windows 98 in the future, windows 2000 and XP provide better security, more reliability, etc, etc. Unfortunately, their networking is more complex, but their network connections are auto-setup correctly most of the time. Just a thought