I'm told the system is using the best video driver found on the Windows 98 SE installation disk, so nothing further can be gained there (since MS doesn't support this OS any more).
I know by now you may feel like I'm beating a dead horse however I submit to you that with the error message you stated "the system is using the best video driver found on the Windows 98 SE installation disk" you did not properly follow the direction when VMware Tools was installed nor did you select the correct choices when going through the wizard after the fact.
If you already had the correct driver installed the message would state "The best driver Windows found is already installed for this device" it would say anything about the "Windows 98 SE installation disk".
Microsoft Support has nothing to do with this issue as the Video Driver you need to install is being provided by VMware and is located in "C:\Program Files\VMware\VMware Tools\Drivers\video" and if you would uncheck the "CD-ROM drive" check box on the "Update Device Driver Wizard" dialog box and select the "Specify a location" check box then click the "Browse" button and navigate to the folder path mentioned above and proceed forward it should install the correct driver.
Just so you know I can reproduce the state your Video is showing in the pictures you've posted and well as the message you stated and I can only reproduce them when the correct driver is not installed and when I do point to the correct driver it does update the driver. Of course if I try to update the driver with the correct one installed I get the message I posted not the one you posted which I'd expect to get under the circumstances.
The only way to force the correct drive to reinstall if the correct one is installed would be to delete the "C:\WINDOWS\INF\OTHER\VMware, Inc.vmx_svga.inf" file and remove the Display adapter from the Device Manager and reboot. It would then install the Standard PCI Graphics Adapter then you would update the driver point to the "C:\Program Files\VMware\VMware Tools\Drivers\video" folder for it to display the VMware SVGA II adapter.
So does the Display adapter in Device Manger look like the picture on the left or the one on the right and the right one is what it should be.
<- Wrong
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