This isn't quite right, Windows Me was a stopgap between Windows 98 and Windows XP. Microsoft had no intention of keeping anyone on Me for long. There were already plans to get consumers onto an NT-based OS when Me launched, the initial version of this was codenamed Neptune.
reply> 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.