The Xbox can't currently run a normal version of Windows directly. There is a port of Windows CE that works, but you can't do a lot with it. Most people here are running a PC emulation program called QEMU from an Xbox Linux distribution (xDSL). QEMU emulates an entire PC and is quite capable of running Win98 without any problems at a reasonable speed.
If you want to use the Xbox as a 'real computer', your best bet would be to install a Linux distribution on it and just use Linux, tbh. The main 'point' of running win98 under QEMU is to play old DOS/Windows games on the xbox, rather than day-to-day computing.
There's no fundamental hardware reason why the Xbox couldn't run a normal version of Windows - Windows just needs to be slightly modified (in the same ways that Linux was), have drivers for the Xbox's hardware written, and have a bootloader that can bring Windows up from inside the Xbox kernel written. This is a pretty hard task, though, and nobody is really pursuing it as far as I know.
Edited by torne, 24 June 2006 - 09:04 AM.