Well having started the thread I got a reply from the freelook guy himself:
" I should've said this earlier - Freelook doesn't officially support Win98, as DirectX won't accept virtual mouse events on 95/98/Me
There is a small workaround for IL2 on 98, however - open conf.ini (in the il2 directory somewhere), and change mouseUse (or usemouse) to 0 or 1 (whichever it's not currently using). "
So now my question is, is there a similar setting to look for in AH2?