It works "out of the box", but the coming Lazarus 1.4 will be the last major release that supports Win9x and ME.
Lazarus 1.4 will get minor dot-releases for 1-2 years and continues to work also after that, so no worries for you.
Lazarus 2.0 will use Unicode features from FPC 3.0 which do not work in Win ME any more.