I've been searching around for this and cannot seem to find a solid answer. I know the 2.0 version of the .net framework is supported in Windows98, but does that include SP1?
I think the main difference is that between when .Net 2.0 came out (1/22/2006) and .Net 2.0 sp1 came out (11/19/2007), Microsoft ended all support for Windows 98 (7/11/2006).
That means it would likely work about as well as plain 2.0, but no guarantees will be made and you run it at your own risk.
It also means they're not doing things like security updates for windows 98 any more, so if you have a specific customer in mind who's still running '98 or ME, you might suggest that they upgrade that machine.