Just some things to check:
Under device manager, are there any resource conflicts?
In you BIOS, check the PCI setup,is it set for autoconfigure?
The P/S2 mouse should use IRQ12 as a resource.
Windows '98 has built-in support for the intellimouse, but you can use newer drivers.
What version of software are u using ? I believe in order to use the latest version u must install the previous one and overwrite it with the latest, at least thats what happened to my system. Also the PS2 mouse uses IRQ 12 and nothing else, will work.