Michael,

What exactly does the message you are seeing say?

A failure to restore to a previously created checkpoint is often a sign
that the 290700 patch for system restore wasn't installed when the
checkpoint to which you were trying to return was created.  If that is the
case the checkpoint is useless.

What is the version of the file smgr.dll in the windows\system folder?
You can check this by locating this file in Windows Explorer, selecting,
right clicking and choosing Properties and then clicking the Version tab.
If not 4.90.0.3003 then that could be the cause of the problem and you
need to download and install the 290700 patch for system restore.  The
easiest way to do this is from the link in the associated KB article
(KB290700 - "Checkpoints that you create after September 8, 2001 do not
restore your computer" (http://support.microsoft.com/?kbid=290700).

It is also possible that at one stage you did install this patch but have
subsequently reinstalled Win Me over itself using the Win Me CD.  Doing
this causes the original, broken, version of smgr.dll to be reinstalled.
If this problem is a result of your having reinstalled Win Me over itself
may I recommend you to download and use the Belarc Advisor
(http://www.belarc.com/free_download.html) which will help you in
identifying which other patches may also need to be reinstalled.

Finally you may want to give system restore the once over by carrying out
the following quick test.
a) Create a shortcut on your desktop to a file.
b) Create a manual checkpoint
c) Delete the shortcut
d) Restore you PC to the checkpoint you created.
Was the shortcut restored?  Did you see any error messages?

Best wishes,