Ok, I just checked out my roommates Win98 laptop. Looks like things are very simple. the INFO2 file exists if there's trash in the bin, but it is deleted if you have no more files. So do this at the command-prompt
attrib -H C:\RECYCLED\*.*
move C:\RECYCLED\desktop.ini C:\desktop2.ini
move C:\desktop2.ini C:\RECYCLED\desktop.ini
And your problems should be solved.