if avast.setup has been allowed outbound access, I can't see why it wouldn't manually update.
Then again, it's been QUITE a while since I've even touched a win98 box.
After allowing avast.setup in the firewall, have you tried to restart the machine? I see that you stopped the process in the task manager, but that might not be enough after making the change.
Give it a shot and post back.
BTW, have you had another A/V program installed on this macine prior to Avast? That might cause a problem, but since it's win98, I have no idea!