I don't know if this is an option, but I might suggest WinXP Home edition. You machine looks like it can handle Win XP and the upgrade (you have Windows ME) is only about $90.00. WinXP is a better designed OS than the Win9x OS. Hardware seems to work better on WinXP. If this is an option for you it will probably same you headaches for some time to come.
If the drive is hosed in some way, this will not help, but if it is a configuration issue, WinXP will probably resolve this.