Hrqls: is the USB hub powered? (an adapter that plugs in to the wall and in to the USB hub)
If not the most likely cause could be that the USB port on the tower is either not powered or has insufficient power to run more than one item. IE the hub and then anything else, that frequently happens on boot up.
win 98SE alot of times does not work well leap frogging USB devices.
If the USB hub IS powered then it could be the way windows boots and it wont recognize past the hub, until the machine is completely booted. But by that time it is no longer looking for a mouse.

Hope this helps.