First XP had a hard time with hardware compatibility. W2k had a huge problem but was marketed as for server and high end technical pros...16-bit Win98SE (and the soon failed Win ME) was the consumer OS. When 32-bit XP was rolled out for consumers the same problems cropped up on old PCs that did not have drivers or proper drivers. So HCLs predominated.
This I have a hard time believing. There are so many computers that I've worked with that would probably have been better suited for Windows 98 (which is a 32-bit only OS, mind you. Windows 95 was the last 16-bit Windows OS). Well, at least for certain brands. If you were sporting a 3dfx card, perhaps, since they were given the axe around the time of XP's release. Honestly what may have killed it for people trying to migrate to XP was that XP required more resources than what Windows 98 machines happily lived with. Getting XP to run on anything less than 128MB of RAM is annoying.
It is interesting that ME was so terrible that people were ready for a new OS like XP one way or the other. Just as really non-functional pre-SP1 Vista primed the pump for Win7 though not as radical a shift as Win9x to NT based XP was.
Looking back on it though, I'm wondering just how bad WinMe really was. Two of my friends had computers with it that didn't give them any grief, but the only thing that was different about their computers than others was that their's didn't have an internet connection. Vista before SP1 wasn't bad either. It was functional, on personal experience since I had a Dell laptop that came with it and it worked just fine. I even loaded it up on my main desktop for a while to see and I had no issues there either.