Is it running under Terminal Services?? If so, you need to share your floppy out so that TS can see it as a device. You need to make sure you map a drive to the share when you log onto TS. Works for floppies and cd-roms.
If this is not fixed yet....
Try going to Control Panel -> System -> Hardware -> Device Manager
There you want to right-click and choose "Scan for hardware changes". Sometimes devices have errors and windows un-installs the device. go figure ;-).
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