You should also check your driver signing setting in Hardware manager, if it is set for block, then it will not install the 3rd party drivers for any device that is not in the HCL
Win2000 will not compress to a floppy, in fact it only supports compression for NTFS partitions.
Therefore, to answer your question, the only way to do it is to back-up to another NTFS partition or hard-drive.
You will have to log on as an administrator and give the power user share permissions for the programs you want the power user to be able to access.
But it sounds to me like you actually have too many restrictions set on the power users group.
No, you should not have to re-install Win2000.
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