Hi John, I've just consulted my LB1 notes and I got this error when I tried to play in DOS mode (of course, I was thinking about LB Gold which also has a Windows exe).
I don't actually think there's a way around this. The only way that I (and the rest of us here) have been able to come up with is to run the game through the MS-DOS emulator DOSBox. But, to run LB1 through DOSBox you will unfortunately need a modern PC as LB1 is VERY laggy in anything under a dual-core processor.
Sorry to disappoint, but I don't think you'll have any luck on your retro system. I know it's strange that this DOS game won't run on Win98 - I was shocked also. Win95 is probably the only version of Windows where the game will run OK. Other than that, it's MS-DOS only!