I looked after a few of these back in the day. Both Win98 or 2k are period correct options
Windows 98 was chosen either due to old program compatibility or simply because it was cheaper (even mid size companies often didn't see the benefit of paying extra for 2000)
Windows 2000 was chosen by the very few who did run a pure NT environment or the above companies were "forced" into the more expensive licence version due to stock availability.
Typically laptops of this era would be upgraded to WinXP maybe even as far as SP2 but were decommissioned before SP3 was released.

I have one of those laptops. Originally they came with Win98 but this one had been upgraded to w2k. Amazingly, the battery still works. At the time of acquisition, the update website still worked, so the E500 was fully updated.

To access the internet you need a card that plugs into a slot on the right-hand side. There's just one USB port, at the back. Although it works for USB sticks, I normally use a mouse there, because the touchpad is horrible.

This laptop only runs at about 300MHz, and takes a long time to boot up. It's very slow. Although as I say w2k works fine, the slowness means that Win98 would probably give a better experience.

You said yours is 800Mhz? I guess w2k would work much faster than it does for me. IMO I wouldn't try XP - 128MB isn't really enough for usability.

Most important consideration missing: what do you want to do with it?

In any event, 128MB is too little RAM to run Win2k smoothly, so as-is I'd do Win98