I read somewhere that Windows 98 can only use 256MB of memory effectively. So, no matter how much you add after, say 400MB, you would still need to enable Swap file. I had the same problem with my 768MB.
Windows XP however, can work without a hitch with Virtual Memory turned off. I usually go upto 800MB usage while working on my 1GB laptop. It really helps increasing system performance given the poor hard drive performance in them.
I recommend you switch to Windows XP given that you have 512MB of memory. On my system, Windows XP with 64 MB is faster than Windows 98 with 64MB in some cases. I.e. Windows XP has a better memory management system than earlier Windows.