Unless the guy knows something about your system that I dont he is not correct. Win98 officially supports up to a Gig of RAM. MS claimed a higher number in the past but they have revised their limit to a Gig. If your MB supports 768Mb, Win 98 will run it quite efficiently.
There is an issue with having to limit your vcache to 512Mb so you dont run out of memory addresses if you have more than 512 RAM, but that doesnt affect your programs ability to use all of the RAM. If you actually use the RAM you are unlikely to encounter the problem as you have to cache over 512Mb. You would have to leave your computer on 24/7 and not have large program RAM demands to flush the cache. I have 512Mb on a Win98 machine and have never seen my cache over 300 Mb even though I leave the computer on 24/7. I could use more for Photoshop as I work with large files but my MB is limited to 512. I saw a definite improvement from 256 to 512Mb.
A lot of people get more RAM than they need and dont see any improvement over 256Mb. So the myth of the 256MB sweet spot for Win98 seems to have come from people who loaded RAM they arent using. If you are working with large graphics files or streaming video you will definitely notice an improvement. If you are not working with something that requires large amounts of RAM, dont waste your money on RAM you dont need.