I had this problem back when I used Windows98. The solution I found was the following:
Open c:\windows\win.ini in notepad.
Under the topic [MCI Extensions], find:
mp3=
If it says mp3=MPEGVideo2, change it to mp3=MPEGVideo.
If it says mp3=MPEGVideo, change it to mp3=MPEGVideo2.
Save the file, and try again. Not sure if you need to restart windows or not, though I think you may.