I was having a similar problem.
PSE 2.0 was freezing up on me constantly. I was able to end task it but it was a pain.
Try a reinstall, I did that numerous times and it would help for a short while but then always returned to crashing when ever a dialog box was required.
My solution was to upgrade the o.s. to Win2K Pro from Win98. I see that you are already running that though. Maybe a reinstall of Windows would work.