I have a fresh system with all drivers installed... I've run most of the official windows 98 patches from windows update and I'd like to do 98se2me and KernelEx and do the revolutions pack. Is there a good order to do this in, or does anyone have any suggestions for patches? Thank you!

Install drivers, then 98SE2ME, then RP7, and KernelEx last. This way you're going to have the least trouble (if any).

I just used win98setome and I chose option 1. It worked great, but I was wondering how beneficial going back and doing option 3 (winme explorer and UI) would be? do most of you do that or leave it alone? thanks!

Option 3 gives you some of the cool additional Explorer features in Me but (as the notes says) can also give some of the Me Explorer instability.
Installing Revolutions Pack 7.11 will give you most of Option 3 anyway since it uses the Me Explorer.

So... Yes you could install Option 3 and then Revolutions Pack 7.11.

Strangely, the Me explorer in 98SE2ME/RP7 crashed a lot on my laptop in sig, but is rock solid under actual Me + Uberskin...

Just a warning: Revolutions Pack 7 can sometimes be incredibly unstable on some systems/configurations (and almost seems random what those systems are). Unless you want some of RP7's applets or icons, I'd suggest using UberSkin with 98SE2ME Option 3 over using Revolutions Pack 7.