I pulled out the flash and defrag'd it in a pc...
I don't get any prompt to press 2...
I'm able to access the vm only in hyperterminal and all it does, is loading the bicom driver(ok) and then runs acd.exe which actually displays these errors and goes back to the dos prompt.
Also, I suspect that some of the files are deleted form the hd... I don't see any subdirectories named "vm"
And, lastly, the key 3 was "on" and 4 was "on" too.