I've noticed the exact same thing when using a cloned HD with Win 98 . Both ZA and Avast forget their config settings when you resort to using a cloned hard drive. I'm not sure why it does this, but it's not too bothersome for me as I only clone a HD for backup purposes and luckily I haven't had to use my backup drives too often.
fyi: I have 2 Win 98 systems (one with SE, the other First Edition with all MS updates). They both suffer the same problem as you describe. I'm thinking it may have to do with software security reasons (i.e. ZA and Avast detects that something has changed with the hardware, so it goes into silly-mode
).
As for file copying, I use:
http://www.xxcopy.com/index.htmusing the comand: XXCOPY C:\ D:\ /CLONE
As for your CD becoming labeled as E: ... well, that's normal for Win 98 if you have 2 hard drives (C & D)... they get priority over the CD (E)... not much you can do about it.