Clear it all and watch the licences
In common with everybody else, I agree you should delete everything, overwrite it and reformat to be sure it's gone. Partition Magic has an option when deleting a partition to do a secure erase. I would use it to secure erase all the partitions on the drive, then create a new single partition across the whole drive. One caution, if your machine came with a recovery partition, rather than recovery CDs, don't delete that partition. Use the Partition Magic option to format the partition and then use the option on most system reloads to reformat again when you reload from the restore disks that came with the system originally.
As far as Windows Me is concerned, I know most of the world believes it is a bad system but I can honestly say that I used it for 4 years with no problems - but then you will have your own experience from this machine. Mine was a UK system but I can't imagine that makes any difference.
Putting some other operating system on or including Office in the sale raises the issue of software licences. The definitive answer to what you can and can't do with respect to licence transfer is in the Microsioft End User Licence Agreement (EULA). You should have had one when the machine was new or if you filed it in a "safe place!" you can check the MS web site. Be sure you comply with all the conditions.
Remember if you load a different operating system, it is not covered by the Me licence, you need to buy a copy from somewhere and that kind of defeats the object. If you sell and transfer the licence for Office, you can't keep a copy, you are selling it all.
So what I'd do is just reload the software that came with the machine and nothing else and sell the machine with the original restore disks and the MS certificate of Authenticity. If you want to sell other software, make that a separate deal.
Good Luck.
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