Windows 98 System Settings Failure

The other night I wanted to update my windows media. It downloaded the new edition, and I was prompted to restart my computer. This is nothing new--I do it all the time; however this time when I restarted it while that little bar called windows 98 update with the drums beating on top saying "Systems Setting" it just completely freezes. I tried everything there is. It will go into safe mode but I cannot pull up normal. That bar comes on and it freezes.

I'd better mention that I now have 3 bad sectors on my computer

 

Those 3 bad sectors could have contained system files. In Safe Mode, go to Start\Run, type in SFC and press Enter. Click on Settings, then put a checkmark in Check for Deleted files, click Ok. Now click on Start in the SFC window.
The bad part about this is that your CD drive may not be working in Safe Mode. Boot with a floppy, you can get a file that will create one at Bootdisk's. Choose CD support, watch the screen for the drive letter for the CD, could be E:, use it in place of the X below, and do these commands with the Win CD in the drive.
md c:\win98
copy X:\win98\*.* c:\win98
Take out floppy and go into Safe Mode.
Now when you run the System File Checker [sfc.exe], and you need to replace a file, Browse to the C:\Win98 folder. In some cases the files are already copied into C:\Windows\Options\Cabs.

OR,

Do an overlay install of windows.