As I recall, LabVIEW 3.1.2 was released to support Windows 95 in pure 32-bit mode. LabVIEW 3.1, therefore, must have been designed for Windows 3.x--a 16-bit operating system. (LV 3.1 runs in 32-bits, but it only talks to the OS through a 16-bit API. LV 3.1.2, on the other hand, talks to the OS through a 32-bit API.)
You don't say what kind of problems you are having under Win98. I would expect it to work reasonably well, except perhaps when talking to various drivers. (Do you have to have 16-bit drivers for LV 3.1 to work? I don't know.)