Can anyone tell me what KERNEL32.DLL is?

I've just tried loading up Colin McRae rally 2.0 to play with my son and received the message 'Cmr2 has caused an error in KERNEL.DLL. Cmr2 will now close.' I've also lost my desktop shortcuts. What's happening?

I'm running Windows ME on a PII 350MHz machine. Would be grateful if someone could steer me in the right direction.