Windows 98 is a very old operating system, yet it is used to ATM terminals because it's very stable and it has no bugs that can be exploited. I can say the same thing for Windows XP but although the OS is newer it has many bugs but indeed, the file security is handled much better than Windows 98 because it is using Groups and Policies to implement security for users, files, folders.
The question bows down to your purpose only, meaning that based on the needs you have you can pick the right operating system.
Regarding the actual file system, Windows 98 had FAT while Windows XP was upgraded to FAT32 file system which brought many advantages to the file management part.
