That can't be the reason. If the kernel crashes (or a driver, 'cause it's all the same in Win9x), then there's an instant BSOD, so there won't be any Task Manager, even if it's already loaded in memory.
I belive that's the way thing were done in those days. In Win95 the Start Menu was also in memory, with the entire menu tree, progam names, icons, and everything. It would open instantly. In Win98 they changed that. It would read the .lnk files form disk (or cache) every time it openend. But it added drag&drop editing! And IE integration. And Active Desktop. And web content in Explorer folders.
Chicago onwards was glorified Windows 3.0 386 enhanced mode, Cougar. The fundamental problems Win 9x has is it was buggier and didn't have the isolation assurances NT had. The main things Win 9x solved were the resource leaks of Win 3x and gradually increased relative stability. Whistler/Asteroid were the ways forward based on NT. (Pour one out for Neptune/Odyssey.)
Buggier than WinNT?! I remember WinNT4 having 7 service packs, and after the latest SP, something like 50 more patches only for the RPC, and in the end they recommended switching to Win2K because it couldn't be fixed without breaking compatibility. I'm sorry I can't give any links - they deleted everything.
You probably remember the BSODs due to buggy drivers.
One could argue that an OS for PC (Win9x) doesn't need any isolation. There's only one user (personal in "PC").
I belive that's the way thing were done in those days. In Win95 the Start Menu was also in memory, with the entire menu tree, progam names, icons, and everything. It would open instantly. In Win98 they changed that. It would read the .lnk files form disk (or cache) every time it openend. But it added drag&drop editing! And IE integration. And Active Desktop. And web content in Explorer folders.