it may be that dial-up simply isn't able to handle running a server... that's probably the answer to your problem
it takes a lot of bandwith to join a server, much less host one.
ya, you're allowed to talk about it so long as it isn't warez
and to turn the enormous files that FRAPS creates into an itty bitty .avi, use VirtualDub
it's not ENTIRELY incompatible... MTA will work on Windows 98, but less often than with XP.
Are you running over a network, or over the internet? If you're running over a network, which one of you is hosting the server?