I recently encountered this problem and the support experts told me it was probably just a corruption in the registry somewhere, perhaps when I had loaded a piece of software. They advised I do a system restore (available on XP and ME I believe)to an earlier time when it was working. This sorted it for me.
stupid question, but are you putting the card in the reader the right way up? I was messing about with a reader in a colleague's laptop yesterday and noticed that Smartmedia cards are inserted the other way up compared to say SD cards. Didn't acknowledge the existence of the drive with the card upside down. Turned the card round, it went in a bit further and hey presto the drive was suddenly recognised.