Its a sony Vaio laptop windows 98 model PCG-717. I have a 2010 paint program I want to install but it says I need to upgrade to another OS.
So the disk you have isn't actually the windows 98 disk but actually you're talking about a disk for some other software product, which you only now reveal to be some kind of graphics program.
Is it possible I could use a free open source OS on this computer or is the fact its so old hurt.
Yes. you can. you could use something like DSL (*censored* Small Linux) or Puppy linux, etc. But regardless of which open source OS you choose the fact will remain that it's not windows and you still won't be able to install Photoshop (or whatever it is) unless it happens to have a Linux version.