I agree as well. It is quite possible to upgrade to WindowsME using OEM disk from Windows98. But it's not technically "LEGAL" to buy an OEM version of WindowsME and install it on a machine that already has an operating system. That is why you keep getting the SUxxxx error.
But if you insist .. you might try looking for the /ntldr trick used to upgrade to Win98se using the OEM disk .. It is reported to still work. But I will have to insist a disclaimer to say .. Dont do it, unless you accept the risk of trashing your current system and having to start over again anyhow.
I understand your desire to upgrade , as I am stuborn myself and have seeked out the exact same upgrade path. Good luck.