Windows 98 introduced Active Desktop, allowing you to use JPG wallpapers. In my experience, enabling Active Desktop would make everything slower, so I always opted to take the RAM hit on BMP wallpapers. It was even better if I could save the BMP in 8-bit and still have it look good.
It's because Active Desktop was essentially running an instance of Internet Explorer rendering to your desktop, of course it's slow and memory intensive.
Disabling Active Desktop and the fancy views on the left pane of Windows Explorer made Windows 98 change from quite slow to super responsive.