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I'm using Windows Millenium Edition. If your using Windows 95, 98 or XP the options and methods of customizing will be different. But I think you'll get the idea. E-mail me if you need different options based on the version of Windows you have.
Turn it off by clicking Start. Then go to Settings. Then click Taskbar and Start Menu. Under the General tab uncheck "Use personalized menus"
And while you're already here I would suggest clicking on the "Advanced tab". Click the box to check "Enable dragging and dropping" and click the box to uncheck "Scroll Programs".
Click OK to save the changes you made to the settings.
Right click Start. Click Explore. Scroll down to Start Menu. Below that click Programs. (you might have to click the + sign next to Start Menu to see Programs) Click Programs.
Click File. Go to New. Click Folder. Name your folder. Close Explore. You now have a new empty folder in your Start menu programs. Drag and drop your program shortcuts into it.
Windows 95 users will need to use the Start menu in Explore to group programs instead of dragging and dropping from the list. Right click Start. Click Explore. Scroll down to Start menu. Move programs into folders from there.
Arranging folders in the Start menu list does not work. All folders will be arranged alphabetically in 95.
By default scroll view is enabled. If the program list gets to large you will have to click on a down arrow at the bottom to see more programs. I really despise this view.
To turn off the scroll menu function go to the Taskbar and Start Menu display. Do this from the Control Panel or Click start, Settings or right click an empty area of the Task bar and click Properties. Next click Advanced. Uncheck Scroll Programs. Click Apply. Click OK.
Below is an example of the sub folder Accessories being displayed. Multiple columns view would look much the same. But this could cause a minor problem. See Below.

But of course if you can't access them because they are already past the edge of the screen you have two fixes to view them. Group the programs you can see until fewer columns are displayed or enable scrolling of the menu and then group the programs into folders.
This is the supposed registry fix to change the view. Since I don't have 98 I have not tried it. Use at your own risk. And of course back up your registry before trying it.
Click Start. Click Run. Type "regedit" without the quotes. Click OK.
Navigate to the following location:
HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\explorer.
Highlight Advanced in the left pane.
Right click in the right pane and select New and String Value.
Name it StartMenuScrollPrograms
Double click on the New String Value and type FALSE
Click OK and exit regedit.