I bin there, done that. Eventually I got some prompts that taught me how to get Win 98 defrag to work OK.
I now pre-empt the system with two actions:
Run ScanDisk. "Standard" is OK.
I then close every programme except Explorer. That is, select the Close Program window (CTRL-ALT-DELETE) and in turn highlight each item then END TASK. Repeat until only Explorer comes up in the window. Some items in my setup have to be actioned more than once before they close. I can action another END TASK before the previous one is complete, but have to be careful that I have indeed hit END TASK, or else the computer will restart at the second CTRL-ALT-DELETE.
Defrag then runs without hangup. Don't hold your breath, it takes a while.
My screensaver is only wallpaper, and I don't turn it off. Whether you need to deselect an active screensaver, I don't know.