No need to feel too bad about having an older computer. I could offer some sympathy about the WinME thing, although it's probably only a little more trouble than some other really old things you may have layin' about at the house. Just remember, the old stuff needs - and deserves - a little more TLC than some of the newer and fresher stuff.
We upgraded from an old "AT" and slightly newer Win95 to a pair of identical twins, desktops running Win98SE in 1998. Lin managed to "outpace" hers in late 2001, so she got a new one with Win2K that December. (Win98 just couldn't meet some of her customers' requirements.) I struggled on with Win98, but by early 2003 I'd used up all the parts swaps I could make between the two old ones to keep even one running, so I got a new WinXP - and it's still running quite nicely, even if it's only a little newer than yours. With our 24/7 usage, the five years I got out of the Win98 machines was pretty reasonable, but at some point enought stuff inside just gets "too brittle" to keep putting in new parts.
Lin managed to "cook the innards" in her Win2K to the point where we had to get her a new WinXP machine a little over a year ago (February 2007). [I think she "blew" the third graphics card playing web games - it definitely wasn't set up as a "game machine" - and the heat from the smoking cards must have fried some memory, so the second hard drive crash - totalled taking a fast curve, I assume - was sort of a "last straw." We were also running out of old monitors to swap in and out.]
She screamed a lot about "losing her Win2K," but I think she's decided WinXP actually is a little "friendlier," and it definitely makes my "job" as "Misdirector of IT" a lot easier.
At present, I can't recommend Vista for me because I've had a lot of trouble with it in our setup. We have it only on a laptop, and in the absence of useful information or help/support from Microsoft I'm becoming resigned to using it there only as an unconnected portable device. For most users I could probably agree to an "okay, if you must" but I'm having real difficulty getting any friendly feelings for it. The new "Office 2007 Premium" on my Vista is also "incredibly unimpressive." The expectation that it will do all the things I'm used to doing in Office 2002 or 2003 just isn't an achievable goal, so far as I can tell thus far.