Haven't deat with 9x machines in a while but...
I seem to recall that the system files had to be in a particular place on the partition. I think there is a "sys" command or something similar that would put the appropriate files in the correct place. I think you can do this with a boot floppy... something like sys c:. A dos based boot floppy wouldn't recognize the ntfs or ext3 sectors so it would probably come up as c:. You could probably find out with fdisk what it thinks your Me partition is.