Microsoft do say that installation on the same partition can cause problems, so I would suggest having two partitions for each OS. Install Windows ME first then go onto install Windows 2K.
I would check the service pack level, and the spooler service status.
Try giving the user local administrative rights to the workstation to see if makes any difference, that way you will be able to find out if it is a rights issue.
** Remember to remove the administrative rights from the user...
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