Tying OEM version of Windows to a single machine is not something new
with XP, it has been around probably since Win95. If you're running
Win98, have a look in C:\windows for 'license.txt', and then look for
the section on 'Software Product Transfer'.
Compared to MS habit of changing the EULA with security patches where
unless you accept the changes, you cannot apply the patches, tying OEM
Windows to a single machine is actually a fairly benign aspect of
their licensing practices.
As for product activation in XP, there are basically 3 different
versions. Corporate volume licenses have no WPA. OEM licenses used
by likes of Dell and Gateway have WPA tied to the mobo bios, in
'retail OEM' and retail versions, WPA is tied to 10 components,
they are CPU id, CPU type, IDE and SCSI controllers, video card, RAM
size, HDD, HDD volume number, CD and NIC MAC,
When determining if the system components have changed enough to
require reactivation each of the 10 components has 1 vote, except the
NIC which counts for 3. For desktop systems, you need to have 7
matching votes to avoid reactivation, for laptops, you need only 4.
All the information is kept in a single encrypted file, if you lose
that file, you will have to reactivate and changes are cumulative
until reactivation is needed, then the profile is reset to the new
configuration.
MS has said that they'd only keep each individual activation id for 6
months, so in theory, you can install XP in a different machine every
6 months and it'll have no problem with activation. However, I've
only seen this feature reported in the press and have not seen any
documentation from MS on it.
SP1 brought along a few changes to WPA, such as the 3 days grace
period for reactivation, and including the full product key in the
activation id. This latter feature, along with the new Windows Update
(v4.windowsupdate.microsoft.com) site for XP and Win2000 which
collects Plug & Play ID numbers of hardware devices, gives MS the
capability to profoundly change the activation process.
So, in answer to your question, Win98SE is definitely much better for
sims.