First this is (or appears to be) Windows 95 and not Windows 98se, and since it is a vmdk I must ask if this is a vmware transplant?
If so then it could be that you have specific drivers associated with vmware which could be causing some issues.
Another thing that you can check is the absolute pointer under system mother board. If it is enabled than turn it off and try that.
Other than that Windows 95, or 98 are not officially supported.