I really can't resists posting this: http://lmgtfy.com/?q=.iso+to+.img - but because I'm not actually that obnoxious, I think WinISO should be able to convert the image you already have.

If you have a win98 disc, any iso ripper (isobuster, winiso etc) should be able to dump it as a .img although the same programmes should be able to convert them too.

Alternatively, there may be a ready-boot .img somewhere out there on the www that I won't be allowed to direct you to here due to copyright reasons, but I think you'd be able to find it easily enough.

The guys on the win95 thread might be of more help than me as they've already tried playing with win98...

Good luck!