Firstly, it seems it is only the Win98 machines having this error (we only have one or two 95/ME machines and the people who use them haven't reported problems - but that might just be they haven't reported it or even had it yet, because the Win98 machines don't get it every time).

I have changed the login.bat to:
net use p: \\Elara\netlogon /yes
start /w %windir%\SYSTEM\KIX32.exe "P:\Login.kix"
net use p: /delete /yes

in order to remove the UNC paths, and changed them within the kix script too. The UNC paths worked fine when just using the login.bat, I just left them like that when I decided to use kix to avoid remote users running a program and also to only run a batch file if in a specific group.

I will have to wait until everybody tries logging in tomorrow morning now to see if it has made a difference.