I reloaded Win 98 on a client's PC yesterday - as usual it just overwrote the existing installation without affecting anything else. It does give you the option of doing a fresh install in a different directory instead and then uses that directory as default from then on.
However this second method will mean you will need to re-install all anicillary software/email etc. But in both cases any personal data should remain in situ (somewhere in the old My Documents folder).
However, if you can back up the crucial stuff first your daughter will still be speaking to you for the next few years should things go pear-shaped by some freak chance (aka Murphy's law) during any re-install.
You could also try running the defrag/scandisk in safe mode - itmight have a better chance without opposition from any running processes.
hth
amofw