This would explain your reluctance to add options and some of the things you have said before that others did not understand. I noticed the many references to SP3.CAB, even after a complete device reset. It is a limitation of the your design. You may want to consider a different design for SP4.This won't work either because all updated files resides in the SP3.CAB.
Technically there's no reason they could not be left as an option, provided an appropriate warning NOT to choose that option if you use USB Keyboards & Mice is given.
Just for the record.
If a user installs a new USB device, the files from SP3.CAB will be installed causing the same issue(s).
This is considered the default instead of the Win98 cd cabs.
I will also have to remove each file one at a time, just to be safe avoiding other mistakes, making sure I don't break anything else in the process. Tampering with the Main Updates option is serious.
I repeated my earlier experiments using the original instructions. I was able to get my USB Keyboard and Mouse to operate, the USB Audio is definitely broken. The USBAUDIO.SYS has dependencies on KS.SYS that requires KS.SYS to be updated. U98SESP3 does not update KS.SYS. Windows Update did this in the Directx update. There is a dependency on DRMK.SYS which is not in Windows 98SE, Windows Update or U98SESP3. The File does exist in Windows XP.
I did find a way to reinstall USB without a PS/2 Keyboard or Mouse, but it was a long involved procedure using a Script and a Mouse Click Generator I wrote.