2K is very protective of how it allows programs to acces the computer's hardware. This is inherited from the NT line of OS'es, and is also the main factor in Win2K's wonderful stability.
However, it does cause intensive multimedia operations to run significantly slower than on 98. I'm not talking about peanuts like playing CD's and MP3's, I'm talking about DVD's (sometimes) and 3d applications (games).
But what was said before is correct: with the right drivers, Win2K runs like a dream.
Most games work fine, some even better than they did under 98. FS2 works fine, it just switches between screens a bit slower.
However, I must warn you away from ME - it's a piece of crap. I don't say that lightly, either. There have been numerous cases where it runs ok, but that has been the exception to the rule. It is a horridly made OS, with a pathetic attempt at covering up the stability issues with duct tape as opposed to removing them from the equation (System Restore adds more bugs and crashes than it supposedly fixes).
I am a computer technician, and one of the first question I ask a customer who comes to me with a problem is if they are running Windows ME. If they are, I recommend (if they can't afford Windows 2000, or their computer isn't able to run it) that they install 98 instead.
Personally, I dual-boot Win98 and W2K. All my work is in 2K, and I use 98 for graphicly heavy gaming (read: IWAR2, etc...)

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America, stand assured that Israel
truly understands what you are going through.
"He who laughs last thinks slowest."
"Just becase you're paranoid doesn't mean they're not out to get you."
"To err is human; to really screw up you need a computer."
Creator of the
Sandvich Bar, the CapShip Turret Upgrade, the Complete FS2 Ship List and the System Backgrounds List (all available from the site)