If and when you install a cd-rom, Mandrake 7.0 will run fine with the X gui. It meets your critieria, and the 2gb drive is a fine size for an older distro like this.
Mandarkes advantage is that they often matain backwards support for hardware longer than RH. Both 7.0 and 8.0 can still be downloaded free of charge from the ftp's and several books are on the market that come with this version of the distro as well as a well written user guide for linux beginers. This may be a good $15.00 to spend. Do a search at
sourceforge for emuliators, I'm positivly sure they exist. the Gnome gui for linux has a media player that will handle mp3's just fine as well. the user interface is similar but different from win98, make the transition easier, and the system will not seem oddly slow running an older linux like this, in fact it will seem just fine without notice.
Good luck and remember to ask questions if help is needed, where always here.
HTH