I often save sets of tabs to my bookmarks. On this machine, the bookmarks file is over 3.5 MB. I haven't ever noticed a problem with it.
Since you're having problems with large bookmark file sizes, it probably makes sense to consider creating your own home page(s) and periodically modify it with stuff from your bookmarks, then prune the bookmarks. I can send you an example of mine if you'd like (it's a big table).
As to how you can edit the bookmarks file, since it has time stamps, etc., in it, it's probably easiest to edit it in Firefox or something similar. I hope that some limitation of Win9x isn't biting you and that the problem you're having is SeaMonkey specific. You might want to try [link|http://kompozer.net/|http://kompozer.net/]. (I haven't used it myself.) HTML Tidy might be able to help too - [link|http://tidy.sourceforge.net/|http://tidy.sourceforge.net/]. (I haven't used it much.)
If some Win9x limitation is biting you, you could try editing it on one of your Linux boxes.
Alternatively, you could e-mail your bookmark file to me and I could try shrinking it.
HTH a bit. Good luck!