It will work, but it has so many restrictions. You can only apply on a folder by folder basis and you have to do it by hand.
The win2000 templates are best as Win Me expects different "magic numbers" than Win 2000/XP (eg 9x the templates asks the folder for info #4 which it thinks is the creation date (or whatever) of the file in the folder but in XP 5 might be the creation date and 4 the file size).
You also need to set various registry settings and even more if you have SP1.
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