If you are still looking for a better defragger, Windows ME defrag is said to have been improved over Win98 defrag. It runs faster and is compatible with Win98. I use it on this Win98se system and am happy with it's performance.
The procedure to install it is very simple:
1. Rename defrag.exe to defrag.old (it's in \windows)
2. Download ME version of defrag.exe and copy to \windows

Here is a blurb from the internet.

http://www.duxcw.com/dcforum/DCForumID1/342.html
Use the Windows ME Defrag Utility on Windows 98 Systems for Quicker Defragmentation May-27-02
"Some users report a significant reduction in the time it takes to defrag a drive with the substitution of the Windows ME defrag.exe. The algorithum used in the ME version, allows for defragging without ending all running tasks. Naturally, your results may vary."

http://www.the-old-sea-dog.net/defrag.html
The Windows 98 Defrag program is very slow especially in the first few lines of the process. Windows ME introduced a much faster defrag program and this is compatible with Windows 98.

Download is available from this site.