With Windows ME to get back to the dos prompt you need to have the ME CD and boot from the CD. Now Not having the CD you could try re booting the PC and whilst it is booting keep pressing the F8 key. Now when you get the Dos looking screen there is an option there to go to the C prompt. Then Re format.
Make sure in the BIOS is set to First Boot Sequence CD Rom, Second Floppy and Third HDD. Insert the Win 98SE CD and re boot and the setup will (should) start automatically. There after just follow the on screen instructions.
Re the modem and graphics card issues you mention, they are just requiring the correct drivers. By re installing win 98 will not solve these issues. You will need to know modem name and model and as well as Graphic card I.e it will be either an Nvidia or Radeon go to either web site and download the latest drivers and that will cure your graphic card issue.
click here for Nvidia drivers
click here for ATI Radeon.