Make sure the right connector is on the cable. You need to use the last connector (the one with the twist in the cable) of the flatcable in the FDD, otherwhise it won't work (I know you didn't change anything, but you might have done something to this when doublechecking the wiring).
Did you check if the drive functions well outside of Windows? Select the floppy drive as primary boot device in your BIOS, put a non-bootable floppy in the drive and start the system. See what happens! If the drive reads the discs, but reports an error about a non-bootable disc, the problem is Windows. Otherwhise, it's hardware!