It's a reasonable low-end system.
"Only trouble is he does not supply an OS Disk, just a copy of the setup files on the HDD."
This is not kosher. "Dodgy Bros" as you put it. Lots of people do it mind, but you won't be able to reinstall if things go wrong.
"I mainly use MS Office programs, email, internet and photo editing."
Why not make the move to Linux? Ubuntu Linux -
http://www.ubuntu.com/ - will let you do all of those things (a lot better than WinME!), costs nothing, has a full MS compatible office suite (OpenOffice 2.0), a secure browser and email client, an excellent photo-editor and much more.
You can use and access all your old data.
And it's legal (if you care).
Linux does things a little differently (though moderm Linuxes don't look too different from Windows) - It'll take you a week or so to get used to it (just like it took you to get used to Windows) but it's pretty plain sailing. And you can stop worrying about worms and viruses.
PS: User error and data corruption is a much bigger threat than HDD failure these days. RAID 1 won't save you from that. And a controller failure just means that both drives are now inaccessible. By all means have a second disk, but put it in a removable drive tray and periodically mirror the first drive to it. Store it in the shed when you're not using it. That way, if it all goes pearshaped you just swap the drive and you're back in action.