To change the default OS, you can do two things. Make it the first entry that appears, or add something like this:
default = "label"
"label" being whatever you labeled the OS which you want to be default. For example, I have Linux_2.4.22, Linux_2.6.7 and Windows, of which, 2.4.22 defaults so I have something like this:
default = Linux_2.4.22
As for the Win98 list thing, I have no clue, try man lilo.conf and see if that helps.