hi!!
i know the answer to your problem, as i had the same problem myself.
what happens is there is a Heater Blower Resistor behind the glovebox. within this are 4 fuses, corresponding to positions 1-2-3-4 on the heater knob. fuses 1-2-3 all run in a series circuit whereas position 4 is on an independent circuit. what happens is one of the fuses on the 1-2-3 circuit has blown, thus meaning only position 4 can work.
the problem is extremely easy to fix and will take you 5minutes.
purchase a new resistor switch, the cheapest and most reliable place is the seller on ebay that i used, the part is very cheap and arrived the day after purchase. (see the link below to the ebay shop)
http://cgi.ebay.co.uk/Ford-Focus-Genuine-Heater-Blower-Resistor-1998-2005_W0QQitemZ110300034603QQihZ001QQcategoryZ21654QQcmdZViewItemQQ_trksidZp1713.m153.l1262
Once you have the part!!!
http://www.amac.f2s.com/Focus1/
gives you all the info you need to change it!!! only requires basic tools and less than 5minutes work.
a slight tip is once you have pulled the glovebox out of the rear mountings, undo the three screws at the front/base of the glovebox and remove the whole thing.
then there are a couple of black plastic retaining screws holding the carpet trim on at the back of the passenger footwell. remove these and the carpet trim, this gives you much easier access to the resistor and makes finding any dropped screws much easier!!
these two steps make the whole job a lot easier and less cramped.
then just put everything back and hey presto!!!
i replaced mine 5months ago and its been perfect ever since, literally as soon as i tried the heater after replacing the resistor, everything worked perfect again!!
email me mda05dt@sheffield.ac.uk if you have any problems!
good luck!!! hope this helps!
DTurton
October 2008