Be aware you didn't share what you tried, so suggestions may duplicate your efforts. Also, if you installed some software, SR will break or behave oddly. Zonealarm is one of the known items which interferes depending on what version. Widely popular, but you have to deal with the issue or ask Zonelabs how to fix.
Here's the usual...
I know the frustration about System Restore. You'll read thread after thread about this FRAGILE feature of Windows ME. The following is a collection of notes about fixing System Restore and what might interfere with System Restore (SR.)
To people trying to surf safely, firewall software such as Zone Alarm has stopped restore points from being created. If you've added such recently, disable such and see if the restore points are working again. Report this to the vendors/makers/authors so they will fix it.
Let's cover a few items?
1. The September 8, 2001 patch.
MS KB Q 290700 - "Checkpoints That You Create After September 8,2001 Do Not Restore Your Computer"
2. A rather LENGTHY article with many links and more articles on fixing System Restore.
http://support.microsoft.com/default.aspx?scid=kb;en-us;q306768"> Troubleshooting System Restore in Windows Millennium Edition
The information in this article applies to: Microsoft Windows Millennium Edition
This article was previously published under Q306768
3. How to use the SCANREG /RESTORE in Windows ME
http://www.windowsreinstall.com/install/trouble/INDEX.HTM"> Look down the page here
4. PARASITES. These can no longer be tolerated. Let me state that your antivirus does not detect/remove all PARASITES! I consider SPYWARE, ADWARE, VIRUS and TROJANS to be lumped into a category I call parasites. Symantec has yet to WAKE UP! to the spyware/adware parasite issue.
a. Adaware 6 from http://www.lavasoftusa.com">http://www.lavasoftusa.com or
b. Spybot from http://security.kolla.de/">http://security.kolla.de/
c. An online scan from http://housecall.trendmicro.com/">http://housecall.trendmicro.com/
5. The new menace. KAZAA borne virus. A big uptick over the last month of machines showed up with KAZAA and some trojan/virus that I think was brought in with KAZAA. The upshot of all this work was to remove the PARASITES, along with KAZAA and hope the machine would stabilize (most did.) A few were quite damaged so the OS was reinstalled.
I had a problem with Systmem Restore on the computer . It says you must shut down the computer in order for system restore to work. I have started and restarted multiple times. Also get a message Psystray.pyd was not found. I e mailed Microsoft and their suggestions do not work.. Does anyone know how to solve the problem?