Yeah, we know what happened.
1) The hdd is too small, you need 3.5 GB for better hd for you install.
2) LILO is having problems finding the boot sector in your root partition. To fix this, do the following:
a) Boot cd into Knoppix
b) Open console in knoppix and type the following:
b1) sudo su
b2) mount /dev/hdd /mnt/hdd -o rw
b3) chroot /mnt/hdd
b4) mcedit /etc/lilo.conf -----> make sure root=/dev/hdd1 and boot=/dev/hdd1 are in there.
b5) lilo
b6) Note: this assumes your bootloader is on an FAT/FAT32 partition only. Won't work on NTFS without a floppy or fat/fat32 partition to transfer to/from.
mount -t vfat /dev/hda1 /mnt/hda1 -o rw
dd if=/dev/hdd1 of=/mnt/hda1/bootsect.lin count=1 bs=512
b7) umount /mnt/hda1
b8) exit <------- to exit from chrooted environment
b9) exit <------- to exit console
c) Reboot if no errors show up in the console when you created a new bootsect.lin file on your boot partition on /mnt/hda1.

If /hda1 is not FAT/FAT32, then change to /hdb1 if that is where winME is located. When you reboot, boot to windows xp and copy the bootsect.lin file to the c:\ drive and edit boot.ini to read:
c:\bootsect.lin="Linux" at the end of the file.

Reboot again and XP's bootloader will give you choices to boot xp, me, and linux.

Good luck,

Durand