I know this is probly not the answer you're looking for, but can you run the server stuff on a machine running something other than Windows 9x (95, 98, ME, etc.). Do you have either Windows 2000 or Windows XP available to you? These are closer to "real" OS's, and multitask a bit better than the 9x variety.

I remember from my days working on printer drivers in a former life, that the 9x stuff can have really high latency in completing some task when you least expect it. We had to be able to deal with short-duration API calls made by the printer driver sometimes taking a really long time, simply because the OS was off doing something else. In order to keep data streaming to the printer, we had to alter our buffering scheme. This was less of a problem on the newer OSs.

I am guessing that WinME goes out to lunch to service some ethernet event, takes a really long time, and stalls the processing of HPNA data... just a guess tho.