Ok. I debugged my user interface library and the bug that it wasn't actually freeing gdi pens and brushes. It was rather harmless under 2k/xp (although it was probably causing a slow memory leak), but it was eating up all pens and brushes under win98/me so that it couldn't draw anything anymore...
There was also a bug with windows resizing that was showing up only under win98/me, fixed.
Since I got the interface working properly under win95 and my little fix yesterday fixed the "couldn't open capture" error, I think it should actualy work under win98/me this time :)