I would say just break down and buy a new floppy. Even a internal one only goes for $10-$12 while a external goesd for $15-20. When using Win 95 you need a floppy. No way around it.
So if you want this fixed gonna have to spend a few $$ to get it to work correctly. Either that or try Knippox. IT is a Linux Live CD that you might be able to do this fix with.