I think the popping up is just a peculiarity of this computer/operating system (its been so long since I used ME heavily that I forget whether this is normal behavior. Just a bit of this systems past: started Win98, 'soft' (data kept) upgrade to ME. Used as a family machine for several years. Relegated to secondary machine. Multiple OS reinstalls, including one from a formatted hard drive. So I wouldn't be all to scared if it behaves a bit oddly.
One more thing: these are not 'normal' DOS window - they're DOS 'consoles'. They have a set size, which one can change via a menu in the upper left. If maximized, text size changes too.
Again, not sure if this is just a system peculiarity.
I'm guessing your 400MHz had very little else running? This machine is by no means 'clean'. Steam and GameSpy have worked their way on there (its a lan party machine) and are running untold amounts of basically... crap (no internet connect on it either, as its the test machine for all types of things, ranging from friend's games to, well, arduino code)
I'm going to go ahead and try to write a looping batch file.
Idea: Bootloader should send an I'm ready signal via serial/usb, then wait for a short time. This way, arduino on the comp could compile, then say 'reset board to finish upload', and watch for the signal. Then communication continues as it is now. This should help eliminate timing issues
Cosis