I have never heard of anything like this happening because of LS. Like xcal says, it sounds more like some video driver issue. If indeed it only happens with LS and not Explorer, maybe you have some funky video driver that for some reason needs the explorer shell to work properly, i.e. some tray app that doesn't get loaded with LS. I'm just guessing here though, I've never encountered something like that. Besides, who knows why 9x does the things it does... it doesn't necessarily need a reason ;)

Also, you are not likely to experience any improvement in stability as long as you're on Win 98. As far as I can remember, running LS under 9x was a nightmare and I doubt it's any better nowadays as most themes and modules do not even support 9x anymore. But I wish you good luck.