If it were me I would opt for AMD. I use Intel at the moment but AMD are doing bigger and better things at the moment. The Athlon chip, whilst a 1.4Ghz chip often outperforms the Intel chipset - take a look at this:
AMD Benchmarks
and the AMD offering is cheaper than Intel.
As for OS I would go for Windows XP (comes out in October) - Windows ME is Windows 98 in a different box.
As I say, this is just my opinion.