Actually, pacwar has required 600K for the last few editions.
The problem with 9x including ME is EMM386. This is a pretty much useless, even very few DOS games use ems.
First thing, is check how much free memory you have (type mem at a dos prompt), with ME I doubt you'll get much better than 580.
To fix things, go to "Run" and type msconfig and hit enter. Be careful in here, you can really screw things up. Go to the config.sys tab, and you should see a line, probably the second one, that says "DEVICE=C:\WINDOWS\EMM386.EXE" with a box with a check mark in it. Click on it to get rid of the checkmark.
Click on ok, then reboot.
Now check your mem at a dos prompt-- you should get 600K free. Pacware should now run from windows with no errors, with mouse support and everything, and no need to reboot to a dos start or vainly otherwise fiddle with a pif, or anything else painful. If you have a really really old dos program it might not run though. But this is pretty unlikely.
Hope that helps.