the solution can be found at
http://support.microsoft.com/kb/q187228/
details (taken from the above website):
This behavior occurs because Windows 98 does not send plain text passwords to Server Message Block (SMB) servers by default.
Method 1
Configure the Samba server to support Challenge-Handshake Authentication Protocol (CHAP) password encryption. Please refer to your Samba documentation for information on how to configure a Samba SMB server.
NOTE: This is the preferred method to resolve this issue because it is more secure than sending unencrypted passwords over the network.
Method 2
You can enable Password Authentication Protocol (PAP) plain text password use in Windows 98. To do so, use the following steps.
WARNING: If you enable plain text password use in Windows 98, all passwords are sent on the network in an unencrypted format. These passwords may be viewed by anyone using a network monitoring program. If security is a concern for your network environment, do not enable plain text passwords.
1. Insert your Windows 98 CD-ROM into the CD-ROM drive.
2. Click Start, and then click Run.
3. In the Open box, type <drive>:\tools\mtsutil, where <drive> is the letter of the CD-ROM drive that contains the Windows 98 CD-ROM, and then click OK.
4. Right-click the Ptxt_on.inf file, and then click Install.
5. Restart your computer.
Method 3
You should use the following method only if you do not have access to the Windows 98 CD-ROM. These steps enable PAP password use without the CD-ROM as mentioned in method 2.
1. Start Regedit.exe.
2. Locate the following key in the registry:
HKLM\System\CurrentControlSet\Services\VxD\VNETSUP
3. Change the data value for the EnablePlainTextPassword value to 1.
4. Restart your computer.