If the light blinks right before showing the boot screen for the OS, it looked at the disk and didn't see anything. If you're talking about the light that came on when it first was detecting the hardware, the rest of this post is pointless.
If it looked at the disk and didn't boot off it, it's because it didn't like what it saw. Try using a new bootdisk, a Windows 98SE Bootdisk.
If you're in windows, download this file. Its a self-extracing Image for a floppy disk. I use this image ALL the time. BTW, do this on a different machine, not the one that's not working.
http://www.24by7.ca/files/boot98se.exe
Just run that file and it'll create a 98 boot disk. Try that, let me know. If you dont trust the source of the file, go to
www.bootdisk.com and I clicked on the first link at the top of the page. It has every bootdisk for windows ever made.
Brian