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This problem is addressed in ArcGIS 8.1 Service Pack 1. See the Related Information section to download this pack.
In IConstructCircularArc::ConstructFilletRadius, one of the parameters of the method is a hint point used to explicitly define where the fillet should be constructed. Though this parameter is optional, the method still requires a point parameter. If you do not need to use a hint point, avoid using the Visual Basic "Nothing" keyword, as this will cause a fatal error.
Create a new empty point geometry and use it as the point parameter.