I too have used Revenge of Mozilla 2se, and K-Meleon works just fine under it. As far as the return of Temp Internet Files, History folders etc., I'd take a bet and say that Real Player is the culprit, as it caches images and stuff there.
To stop the return of these folders (especially if you don't want them), then I might suggest you install ProTAB (it's made for 98lite, however it works just fine with ROM II). It will place an applet in Control Panel which gives you more options and control over your "lite" version of Win98.
It can be found here: http://snoopy81.freeservers.com/index.htm
The zip file contains an *.inf file, which you just right-click and select "Install" to install it.