This dilemma is far more difficult than it initially seems to be.
"vanilla" installations are pretty much vaporized after deploying one or two software suites or games which replace core system components with their own, many do this without dependecy walking and making backups of dll files and registry. So in a win9x environment you should make full backups a lot more often than on XP.
That said, updating certain core utilities with WinMe versions is generally more useful than harmful. Like a better scandisk, fdisk etc.
Updating USB components with the latest stack and drivers is also beneficial.
"Updated" web-related components are almost useless today, being hopelessly deprecated - you can forget about stable multi-threaded browsing even with Opera and Firefox, not to mention safety.
KernelEx again can make a few NT5 programs run perfectly but can prevent other software launch, even when disabled.
A utility that can properly uninstall and rollback DirectX can be also handy at times.
(Finally, all this talk is meaningless when one has a very modest computer like a 486 or early P1, which can barely cope with Win95 original edition or 98lite)
"Ita in vita ut in lusu alae pessima iactura arte corrigenda est."