Between 98SE and ME, I would personally stick with 98SE. It's the most stable O/S MS ever had (IMHO). ME was the embryo leading to Win2000. It was a hybrid. Again, IMHO, either stay with FAT32 (98SE) or go to NTFS (Win 2000/XP).
The downside for 98SE is;
- security, however, there are downloadable programs etc to help with this element.
- todays programs/software designed for later O/S's (XP etc)
The upside is;
- easier recovery
- more (easier) control
ME:
If your machines hardware is known to be good (motherboard, CPU, RAM, Hard disk, optical drive(s), etc) backup ANYTHING you wish to save off of the machine.
Boot with your ME media (floppy/CD), then use fdisk to delete all partitions on the hard disk. If there are partitions that won't delete through fdisk, then use
DELPART
http://www.d-a-l.com/dan/delpart.zip
http://www.juliatexas.com/delpart/Delpart.exe
http://mesich.com/download/delpart.exe
This is an undocumented/little-known utility from Microsoft which will remove stubborn partitions from hard disks.
Once all partitions are removed from the hard disk, reboot/restart with your ME bootable media again, then attempt a fresh install with the blank hard disk. ME should walk through the creation/formatting of a fresh partition and procede with the install.
If it doesn't, then you have a media or hardware problem.
Post back with your results and any further questions.