Alright, it seems to be confirmed now. That legacy usb setting is tricky. The mobo also is not really understanding what a mouse and keyboard is.

Disabled: Windows boots but at any stage between post and windows such as scandisk, windows 98 setup disk, probably others keyboard does not respond. But Windows boots and usb drives all work well.

Keyboard + Mouse: Some situations the keyboard is working, Windows does not.

All Device: KB+M always work well. Windows does not.

So if I want to install Windows 98 I need to flip between these settings to have kb support during setup and then no conflicts when booting into the OS.

Thanks to everyone who contributed!

Hi. How are you installing the nusb drivers? Excuse me if you already mentioned it.