Some Googling for the error message (w/ avr-g++ replaced by the more common avr-gcc), reveals that this is probably a bug in Windows 98's handling of the executable name when spawning processes: http://www.avrfreaks.net/index.php?name=PNphpBB2&file=viewtopic&p=325690#325690
. There are patched versions of avr-gcc available, but I didn't see any for avr-g++ (which Arduino uses, but is not otherwise very popular). There's a patch for the gcc source at: http://www.avrfreaks.net/index.php?name=PNphpBB2&file=viewtopic&p=320522#320522
, but you'd need to recompile avr-g++, which I've never done, and I don't think is that easy. Honestly, your best bet might be upgrading to a newer version of Windows.
And yea, to get the source to Arduino, you need to use subversion. What do you need it for? If it's a common request, I could package it up, but I'd like to understand what parts people need so I don't have to include all the various binary versions of the avr tools.