Yes, you can use an upgrade as a clean install. I did it for the 95&98 upgrades.
Not sure if it will work for WinME, but give it a try.
After formating:
1. At dos prompt, make a directory named "temp".
2. Copy command.com to the "temp" directory. Rename it to win.com.
3. Again copy command.com to the "temp" directory. Rename it to winver.exe.
4. Run setup, it will ask you the directory to install, choose "OTHER", then type c:\windows
and u should be ready to go.
Hope it works.