If you want it to serve webpages, yes you need to install a webserver.
Last time I had Win98 there was something called Personal Web Server (PWS) which worked ok for something by Microsoft. I'd recomend installing Apache (http://httpd.apache.org/docs/windows.html) or whatever webserver your other webservers have.
Ideally your development/test/local box will be identical to the production servers.