Mmm...
Now I like lio said, 98SE IS better then 98. (Talking drivers and bugs...)
Now putting bad memory in a pc doesn't screw the other components, if it freeze and you unplug or cold boot the system, you may corrupt files. Not always but it is a possibility.
For the cd's, maybe it's not the CD-Rom that is bad, check the actual CD Drive by putting your new CD-Rom drive in the old machine...
Does it freezes in windows or in the installation by the way?
Hope this helps!