Reactions to Windows ME forced MS to respond with XP; reactions to Vista forced them to respond with 7. They're being stated in parallel rather than chronologically.
> Microsoft discussed a plan to delay Neptune in favor of an interim OS known as "Asteroid", which would have been an update to Windows 2000 (Windows NT 5.0), and have a consumer-oriented version. At the WinHEC conference on April 7, 1999, Steve Ballmer announced an updated version of Windows 98 known as Windows Millennium, breaking a promise made by Microsoft CEO Bill Gates in 1998 that Windows 98 would be the final consumer-oriented version of Windows to use the MS-DOS architecture. [0]
So XP was not a reaction to Me's reception, it was already in the works as a replacement when Me came out.
I did try XP here and there, but was instantly turned off by the cartoonish default theme (yes, I know you could change it). It was buggier than Win2k, and I didn't have the patience to wait around until they fixed it. I was told later on by people in the know that Service Pack 3 was the bees knees, but by then I'd moved on to Linux full-time (with some jaunts into OS X) and felt no need to come back.