1. What's the "exact" error message? Why do you think "system.ini" is the problem?
2. Registry Backups. Default setting is to backup the "registry" each day system is booted. Last five backups are saved. I believe "win.ini" and "system.ini" are stored within the registry backup ".cab" files by default. Restoring to an older version of the registry should replace those files along with the registry.
The "scanreg /restore" command is used to access the backups.
3. Boot Floppy. Can you boot from Windows 98 Startup disk (floppy)?
4. Safe Mode. Can you use the F5 or F8 function keys during startup to select a"Command prompt only" or "Safe Mode" boot?