If I remeber right there is no "Stretch" for win98, so you must have use a wallpaper module (or the installer stretched it from theme.ini settings)

My blind suggestion:

Install Litestep again,
use a theme that sets the wallpaper
edit/add the theme.ini file in $themeDir$ so that
or whatever the correct setting is

Hopefully that will reset whatever thing the installer adds to stretch your wallpapers.

This probably wont work, so dont say I said it would ;)