Built mine using an old P5-133 desktop system. Installed Win98 as a 'minimal' or 'compact' installation, which leaves out most of the useless stuff. Note, that's most. You're highly encouraged to remove large and unnecessary .CHM compiled HTML help files, .WAV wave files, .BMP bitmap files, and the WIN98 Welcome and Tour files, etc. Then I updated the system to Win98SE, and cleaned up, again. I don't have Win98LITE, but didn't need it, really.
Using a SanDisk 256Mb CF card, and the Microtech Zio! USB CF adapter on my PIII-500 desktop (the P5-133 doesn't have USB) I formatted the CF card with Windows Explorer, then used a DOS window to execute the SYS G: command to write the IO.SYS, MSDOS.SYS, COMMAND.COM, and DRVSPACE.BIN files to the CF card. You can actually put this CF into the IA-1, and boot to a DOS prompt, this way.
Unfortunately, as ranman and bballctaulbee have documented, Windoze FDISK and FORMAT commands typically mark the CF card's disk partition as a FAT-12 partition, which doesn't help you to boot the Win98 GUI. FAT-12 is for floppy disks, not hard disks. The Ranish Partition Manager version 2.40 is most useful in this case. Ranish will allow you to update the CF to a FAT-16 partition, and mark the partition as bootable. Once you've updated the CF's partition table with Ranish, try booting from the CF again, just to make sure it's okay.
At this point, you've still got 16 megabytes of usable storage within the IA-1's internal SanDisk. I recommend using your DOS only CF to make this 16 megabytes a bootable copy of your CF card, at this state. (Unless you really love WinCE and MSN that much.) Since the DOS files only take about 1.5 meg, you can load the Win98SE cabinet files BASE5, BASE6, BASE7, NET11, etc. on the internal SanDisk, and not be forced to leave them on your CF card.
Finally, I put the CF card back into the USB adapter, and network copied the contents of the P5-133 Win98SE Program Files and Windows directories to the CF card. Explorer will definitely fail trying to copy the WIN386.SWP swap file, so you're better off using XCOPY in a DOS window, with the options /E /C /H /R
/E Copies directories and subdirectories, including empty ones.
/C Continues copying even if errors occur.
/H Copies hidden and system files also.
/R Overwrites read-only files.
Using this CF, you should be able to boot the Win98 GUI, with a very ugly 640*480 VGA 16-color screen. This is useful for loading most of the new hardware drivers from the BASE?? and NET?? cabinet files you stored inside the IA-1, earlier. Don't worry if you get a 'blue screen of death' (BSOD) or if your IA-1 hangs. Just give it a minute, turn off the power, and turn it back on. It will pick up where it failed, or at least boot into safe mode, and you just keep going from there. Eventually, you'll get far enough to network mount a directory, and you won't ever need to copy the video, sound, or modem drivers to the CF or the IA-1. Just install them from the network mounted drive.
hope this helps you. post a reply if you need more detailed assistance along the way...