Have a look in device manager (right click on My computer and then click properties, choose device manager tab (hardware then device manager in XP).
in device manager, check Floppy disk controller & floppy disk drive for any faults.
could be the floppy controller (windows driver) that has become corrupt.
Which windows are you using?
if its 95 or 98 then click start/shutdown/shutdown to dos
then put a disk in the floppy drive and at the prompt A:> (if the prompt is C:> then type A: and press enter)
see if the floppy works in dos.
if it does then the windows floppy controller is corrupt, if not then it looks like a motherboard fault (are you sure the floppy cable is in the right way round) and connected to the terminal After the twist in the wire.
please post back to let us know