I'm encountering similar problems with a batch of Win98 client PCs in our NT domain environment. After entering username and password, the system hangs. Ctrl-Alt-Del reveals Kix32 and Winoldap running. Killing Kix32 from the list allows the PC to finish booting, but none of the script executes. (no drives mapped, etc.)

--OR--

Killing Winoldap produces an error of "KIX32 - Windows cannot shut down this program automatically. It is recommended that you exit the program with its quit or exit command... (YES/NO button)" BUT the script then executes.

It's also interesting to note, that once completely booted, the login script can be run cleanly by executing the script from the netlogon share. Hmmm.