I am currently running Windows ME and I am interested in installing a new operating system. However my computer never came with a Restore disk, so I'm afraid if I load a new OS (and I have problems) I won't be able to load ME back on again.
You are quite right to be concerned, but not necessarily for the reason you think.
The problem of not having a 'restore disk' is mostly irrelevant, because it wouldn't restore your system to its current state. If you have a CD writer you can get Acronis TrueImage for free (coverdisk) and make an image of your hard drive and a rescue startup disk. This is your insurance against future problems, and my advice would be to do it whether or not you decide to upgrade.
Every part of your PC is replaceable except your data.
What you do next depends on you, but a good choice would be to upgrade to Windows XP Home. It is a solid operating system with a good track record.
My advice would always be to reformat your hard disk and do a fresh install from scratch, this always gives a cleaner result, but you do have the option of installing XP as an upgrade over the top of your existing OS. If you do it as an upgrade you won't have to reinstall your applications and data files, so it is definitely easier.
However there is a small risk that any problems with your current installation could be carried forward.
A while ago I did have a virus and I removed it, however for good measure I wanted to format my drive. I can get a CD from Time to re activate the partition to load up ME however the bloke on the phone said it doesn't always work and that I should sent them the machine for the price of something like £250 and they will do it for me.
Suffice to say I declined. If I used something like what you suggested would it copy the operating system so I could reinstall it?
Creating an image of your hard disk doesn't allow to 're-install' as such - what it does is it takes a complete snapshot of your system and allows you to return it to exactly how it was at the time when the image was made.
So for example, if you then re-formatted your hard disk and installed a new OS, then changed your mind, the image file you made could return your system to its previous state in a single operation.
You would then just re-boot and your system would be exactly as it was. It would be as though the re-format and new install had never taken place.