Sorry I don't think I actually answered your comment.
The boot loader on the mbr will be as installed by fdisk and will load the OS loader form the boot record of whichever partition is set active (c: in your case)
Lilo replaces this loader but not the windows OS loader on your c: partition, which uses boot.ini to give the contents of the Windows OS menu to allow you to both into WinMe/2K.
All you are doing by putting lilo on the mbr is replacing the standard MS boot loader, it won't cause any problems with the OS loader. (this is also the reason why you loose any boot loader when putting on windows upgrades, because they tend to run fdisk /mbr to replace the boot loader when finished !!)
It is possible to load lilo onto the bootrecord of a partition (i.e. the one with your / on) and point to this from something like boot magic. It still does not, I believe, get round the MS OS boot menu problem.
It might be possible to use the MS boot menu (via boot.ini) to boot linux, itwould depend on how smart (or dumb) the MS OS loader is. I'll have a look see if I can find out.
A.C