I run two WinMe machines at home without problems, one of which runs as a server (Mail server, web server, ftp server, etc.) and have much more stability than any other windows I've used (Including WinNT, and 2000 at my workplace, but I'm looking into 2000 for a server at home setup by myself.)
One thing I would say is: Throw away PWS, it's a heap of junk that is buggy and doesn't do as you want. It also is a complete pain in the posterior to get working right on WinMe.
I use a piece of software called Sambar Server ([ad]www.sambar.com[/ad]) that supports ISAPI filters and is small and cheap (Free for just a few things, $99/$75 for the full package, depending on whether they've upped the price for 4.4/5.0 yet)
It's stable, it does mail, it does JSP (If you want to get into that), it has its own scripting language, it does FTP, etc. It's a useful piece of software.
Scautura