there are a few caveats that apply, here
perhaps one of them will hit home :P
1. the masm32 package should be installed in the root of a drive
it can be any drive (C:\, D:\, etc), but it must be in the root of that drive (C:\masm32)
2. the package is set up so that you can only assemble from that same drive
so - you want your project(s) to be on the same drive
3. there is really not much need for setting the LIB, MASM, INCLUDE environment variables
the masm32 package is not set up to be used that way
4. the one environment variable that will help is the PATH variable
it makes things easier if the C:\masm32\bin folder is in the PATH (or whatever drive you use)
5. in the \masm32\bin folder, you will find different batch files that may be used at the command prompt
for a SUBSYSTEM:WINDOWS app, the one named "build.bat" will work
you can open the batch file with NotePad to see what it does
6. follow Jochen's advice :P
There is a reason why many of us use as first line
include \masm32\include\masm32rt.inc
instead of the whole bunch of model directives etc...