Complete rubbish. The system32 directory was only used from NT onwards. Before that all windows OSes stored their files in a folder called "system" with no prefix indicating the bit number of the platform.
System. Contains 16-bit versions of protected and real mode drivers and .dll files used by applications. These files are provided for backward-compatibility with older applications. Additional 16-bit driver files can be stored in this folder.
http://www.informit.com/articles/article .aspx?p=101731
That backward compatability is, what was used by 98 and before. Case closed.