[Animal]

If your running any kind of firewall software, including XP's built in firewall, that will cause problems.
If I remember correctly your ME machine needs to be logged into the same domain as your XP computer.
I've got 1 XP Home, 1 2000 Server and a 98 box all on the same network with no problems.
I've never run ME, but ME and 98 are the same thing. Under 98 or ME you need to make sure that all users are not using the same profile.
Like Nick1979 said, fire your XP disk into your ME box and choose other options, and network set up. This will put all the necessary files on your ME machine.
If your XP box is running NTFS, ME will not recognize this file system. XP can grab files of the ME drive, but ME won't even see the XP drive.