WELL..... here is an update, for those of you that care..
Finally got it working. Not exactly sure what did it, because i got desperate and started changing 100 options all at once without testing each one individually. Here are the things that I changed..
Changed "plug and play OS" to NO in BIOS options
Installed promise ATA100 controller
disabled DMA on CDROM drive
disabled read ahead optimization on CDROM drive
After changing all of these, I was finally able to install EQ without any problems. I wish i knew which one of these was causing the problem, but my guess is its one of the first two. I doubt its the second two, since i got the same error even when copying all the files to my HD and running setup from there.
Now that i know a set of possible solutions, i can probably reinstall WinME and get everything working normally.
There are still two problems that have been haunting me though...
First, my mouse is acting VERY VERY strangely. If I so much as move it slightly too fast, the mouse cursor just jumps all over the screen eradically. Turning sensitivity of the mouse in windows up just makes it worse. I know my mice is not at fault, because i've tested 2 of them (a USB/ps2 and my old serial), and they all have the same behavior. I think its due to the MS intellimouse software, but i could be wrong.. One thing is for sure, i never had this problem before.
Secondly, in winME, q3a was acting a bit strange. I explained part of it above. another problem with it was when i ran the first demo, all the textures would be corrupted, and it was like the screen wasn't refreshing itself. Strange, but that might be due to the voodoo5 beta drivers. Oh well, this post is too long already..