IMHO there is a big difference between Windows ME and Vista.
As a matter of fact Windows ME is - as you say - very similar to 98 SE (with actually a few betterings "under the hood").
The issue was that it removed (or made difficult) to an audience coming from 9x a large part of their experience (MS-DOS in real mode) while introducing quite a few incompatibilities (particularly with DOS based programs, but not only), and the betterings were not easily detectable to the end user.
As a matter of fact, the "best" system is most probably a 98SE2ME:
http://www.mdgx.com/9s2m/
http://www.mdgx.com/98-5.htm#KRM9S
Of course XP (particularly the XP Home pre-installed on laptops) killed it (while providing - on the very limited hardware on which it was installed - a poor experience to the user anyway).
Vista is a different case, it actually sucked, and it sucked big initially.
A number of (senseless) changes were introduced on the otherwise perfectly working NT derived XP, and it was delivered in a severely immature stage, while no or very little documentation was provided.
Besides (the same) issues with low-powered entry-level systems where it came pre-installed, the real deal breaker was that it was widely publicized as the "new better" OS (understandably from MS point of view) without highlighting how the hardware requirements were extremely higher than what XP ran on.
The net result was that everyone that had XP running tried it (either on the same old hardware where they had XP running just fine or as a pre-installed OS on low-low power notebooks/netbooks) and the result was of an extremely slow OS (additionally with a lot of issues with permissions, network and drivers).
It was doomed, everyone that could remained on XP, at least at the times of "gold" and - later - "SP1" (which only partially fixed the issues) came out.
The actual working version of Vista (from a certain point of view even better than 7) was SP2 which simply came too late and was "killed" by MS itself and by the release of 7.
The latter was also IMHO greatly facilitated by the progresses of the hardware in the meantime, an entry level system in 2009 was far more powerful than an entry level system in 2006 or 2007, and this is one of the reasons why 7 (which I like to call Vista SP3) actually had so much success.
BOTH Vista and 7 are resources hogs (when compared to XP or even better 2K) what made the difference was the sheer power/speed beneath.
jaclaz