Windows 7 / Windows 98 shared access problem

Windows 7 is using only NTLMv2 authentication for remote access but your Windows 98 terminal is trying to authenticate with LM/NTLM. These old authentication methods block Windows 7.

You can change the authentication level in gpedit.msc:

Computer Configuration\Windows Settings\Security Settings\Local Policies\Security Options\Network Security: LAN Manager authentication level