Strange happenings with a 2k pro box

This is kind of a long story, but I'll try my best to keep it short. I recently built a computer out of my old parts for a friend. It's a P3-800 on an ASUS P2B-F with 512Mb of memory (has a Cardinal 28.8 Modem, Voodoo 3000 AGP card, and Diamon MX300 for sound). She already had 98 on her old computer, but wanted to upgrade and needed more space. So, I bought a generic 80Gb Maxtor drive, set it up as a slave, and installed it as a dual boot with the original 98 on the master drive (~7 Gb).

Right from the start I had trouble. I could get the dual installation working, but the new hard drive kept corrupting every time I accessed it from 98. I'd have to fix it in 2k (both were FAT32 at this time). I originally thought I had a bad drive so I went to Maxtor and downloaded their deep scan utility, but it passed all of the tests (I also ran tests on CPU/memory earlier). They state that if they drive can pass all of these tests that there is nothing wrong with it. I accepted that, but after a while the 2K became corrupted again and I did a reinstall, this time on NTFS. Again, this worked for a while, but eventually it had problems booting 2k and files became corrupted.

I decided at this point to rule out any heating issues. I bought and installed a big case fan and applied some arctic silver thermal caulk to the processor as the old caulking looked worn out. Interestingly, before I did all of this the computer had problems getting through the memory check (it would cycle over and over), but now it just runs through it once and continues. I did a win2k repair this time as she had a lot of settings/data I didn't want to run over with a fresh install. The repaired Win2k was flakey though. Some programs need to be reinstalled which was not problem and I had to do some registry tweaking to get back some of her old settings. The computer was only operational for a few days and then lost mouse and keyboard input. I tried to do ANOTHER win2k repair, but it wouldn't complete saying it couldn't read certain files from the CD. I thought I must have scratched the disk, but after cleaning it still got hung up. I then booted up a console repair and did a chkdsk. Low and behold, errors everywhere. After that the win2k repair install went smooth and I got the system back. This time however, Network DDE kept running continuously, bogging down the computer. I couldn't figured out why, so I just ended up disabling it. Everything is running smoothly now, BUT every time I run a check disk it says it's trying to recover orphaned files, but never repairs them (or it does and then loses them again).

I'm back to thinking A) it really is the harddrive (possibly a hardware issue that can't be detected with the utilities) or, more unlikely, B) it was a heating issue that I resolved, but now my overrepaired win2K is too far gone. Any thoughts before I end up throwing in another drive with a fresh 2K (a lot of work and an unhappy friend)?