Perhaps it's a general problem with your iPod/configuration in that it can't be recognized? If you look around the forums you'll find posts on what to do as well as the apple support site.
Anyways, Adam. Am happy to say that I connected my iPod, ran updater.exe and all seems to have gone well from my knowledge - no error messages popped up and checked the 'About' menu on the iPod and at the bottom it says 'Format: Windows' so yeah, please make this sticky for people to use and help everyone out.
Process I followed was (really breaking this down):
1) Insert CD.
2) Open 'My Computer' and locate your CD-ROM drive (it should be called 'iPod 2 1 CD'; right-click this and choose 'Explore'.
3) A new window should pop-up which allows you to search the contents of the CD - follow the following path:
Program Files\Apple\iPodUpdater\program files\WinRoot\runtime_ipod_updater_dir
4) Copy 'Updater.exe' across to your PC and run as usual.
Should hopefully be a further problem solved for Windows 98SE users
(Just editing to say that I've also successfully copied all my tracks onto my iPod too using Media Centre with no problems whatsoever.)