This problem only applies to Windows 98 Standard edition.  The problem was solved in 98 Second Edition.

If you connect a Universal Serial Bus (USB) device to a Windows 98-based computer while the computer is in Standby mode, the computer does not resume from Standby mode to process the USB device connection and immediately recognize the new USB device. The computer remains in Standby mode, and may not recognize the USB device once the system resumes.

The easiest fix is to unplug the device, resume from standby and then reconnect your USB device. Also upgrading to Windows 98SE works.