Some users on Sampada have reported that Unicode can be viewed on Windows 98.
Here are the steps:
(via input from Dr. Pavanaja and Rohit)

1. Copy any Unicode Kannada font (preferrably a licensed Tunga font) from http://salrc.uchicago.edu/resources/fonts/main.html to your windows fonts folder.
2. Completely uninstall the IE, and install the latest Internet Explorer on your windows 98 installation (i.e IE 6).
3. Add "Arabic support" while installation.
4. Restart the Operating system.
5. Download and use http://www.alphaworks.ibm.com/tech/indicime to key in Kannada in Unicode.

P.S: Yahoo mail and Yahoo groups *donot support* Unicode conversations. Google groups and Gmail *support* Unicode - which means you can converse using mails in Kannada on Gmail.