Most likely the win98 install died on your with around 16 or 17% of the install left to do. That is when it is trying to determine the hardware. You should be able to boot into safe mode and see that only a few things are there. I think it hangs on using the ACPI stuff.
Anyways, I had the same problem as you when I just transferred the OS from another computer. It also did not work for me when I just ran 'setup' from the dos prompt on the ipaq with NO switches. BUT, good news here, I tried reinstalling it using
setup /p d (which prevents it from detecting devices)
and it went through the full install, albeit just VERY slowly. See http://support.microsoft.com/support/kb/articles/Q128/4/00.asp
Then after windows is installed, it should run fine (but no sound, no modem, yucky video). Then go to add new hardware, hit next, hit next, hit NO (I want to select hardware from list), select system devices, then select Plug and Play bios (failsafe). I am going from memory here, so this might not be fully correct, i.e. you might have to delete everything from the system devices box.
By doing this, win98 should then detect all the necessary devices and keep running fine. Of course though, then you will have to load the drivers for the modem, sound, video, and maybe the amd 4-1 driver things. If you need the drivers, let me know. The ones I use for the video, sound and video all work well.
On a 256mb card though, there might not be enough for the cabs dir (110mb) and a minimum install. Take a look at the switches, I think there is one to override that setting. If you do try the above, BE PATIENT. It is unbelievably slow when the ipaq is doing all of the work installing.
Dialup works well, get 50+k, mp3s play well with winamp at around 30% cpu util or so, and the video looks pretty dang good at 800x600.