Well, if it helps anybody, I was FINALLY able to get sound and network to work.
The sound drivers that worked for me (Parallels 7 on a MacBook Air running Lion) are here:
http://members.driverguide.com/driver/detail.php?driverid=63605
For network drivers I used the default Realtek RTL8029 Ethernet Adapter and Compatibles driver that comes with Windows 98. I think something that helped was going into hardware configuration and removing everything not needed (sound, usb, printers, network) and then just adding the network back. Win98 then recognized the PCI Ethernet adapter, I told it to show me a list of available drivers, and picked from the list. Trying to use Realtek drivers from all over the net just didn't work for me.
As for the sound driver, I messed with that for hours, and finally decided to start from scratch (I had backed up my VM), I turned on the sound and I ran the setup.exe from the link above. Voila! Sound.
It helps if you copy the drivers to the hard drive, as you will need the Win98 source CD available. It asks for it every time a new driver is installed.
Now, on to the video driver.
The one that comes with Parallels tools works, but once installed, I can no longer shut down my VM. It just hangs.
Sigh.
