Hi Paul,
It'll be hard to help much without seeing your code.
Regarding the IE issue, I suspect it's related to the Java version. By default, windows only supports version 1.1.4. You can get around this by using the Java Plugin.
For the login screen, make text fields for username/password, add a button with an onClick handler to push the values to the server.
A couple more issues. You don't really need a signed applet for simple chat. It could worry users that the applet might be trying to do more.
Last, check you thread handling. Your applet killed my browser. I suspect you might had a deadlock issue.
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