Yes it's possible. You have the ideal graphics editor in PSP5. Grab ConvR8 here. http://www.mnwright.btinternet.co.uk/index.htm
read the instructions & set it up to work with PSP5. You will find it invaluable for converting the R8 & AF texture formats used in FS98. Treat both formats the same. Basically, open the texture in ConvR8 & send it to PSP5 for editing. Then exit PSP5, saving changes. Reload the edited texture in ConvR8 & use the "Save as R8" option, adding the appropriate file extension. This will convert it back to the correct format using the FS palette.

Please make back up copies of all files before editing them.