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You should back up the following folders:
Favorites
My Documents
Move them to another disk or to a network computer, burn to CD/DVD or leave them in another folder (besides the windows directory or drive root) if you must.
It will overwrite MSIE's favorites, which isnt a problem if they dont use IE. I cannot remember if it overwrites outlook's mail stores or not, but e-mail is my livlihood so I back it up anyway. Back that up for sure if you need anything in there, otherwise dont.
But with Win98 it is better to format anyway.
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