What version of PowerDVD? I have 5.0. http://www.cyberlink.com/multi/products/require_1_ENU.html states system requirements for version 6 that clearly exceed your system. However, the system requirements stated by vendors are sometimes overstated. My processor, an Athlon XP 2200 (1.8GHz) is well above the system requirements stated on that web page; yours is considerably lower.
Note that the system requirements calls for "Graphics Card: AGP or PCI Express graphic accelerator with DirectDraw Overly Support". And, this, in my opinion, is an overstated requirement. I have two monitors and two video cards (AGP and PCI). Right now, I've got PowerDVD playing a movie on the monitor connected to the PCI video card (nVidia GeForce4 MX440 with 32MB memory) and it's running flawlessly.
I think your video capacity is a major problem. I'm quite sure installing a PCI video card with at least 32MB (but preferrablly 64MB) of memory (on the card) would greatly improve the performance of your system when running PowerDVD. And, the video upgrade would improve performance for general use, as well. Now, I can't give you any assurance it would eliminate all the performance problem because you still have a processor that's below the stated system requirements.
You have plenty of system RAM for Win 98SE. Again, a video upgrade would help a lot but might not totally elminate performance issues with PowerDVD.