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Multiline labels cannot be set for an image or feature service. To set up a label in two or more lines use the ArcMap Server and an ArcMap service.
This is a known limit for image and feature services. Use an ArcMap service to work around this.
To set up a multiline label use ArcMap to setup the MXD. Use the same process in Version 8.3 and 9.0.
After the MXD is created add the service to the ArcIMS ArcMap Server version 4.x or 9.0.
The following example outlines how to set up multiline labels for the ESRI Sample Data that comes with ArcIMS.
For ArcIMS 4.0.1 and ArcGIS 8.3, remember to use UNC path names for the data by using the Connect to Folder button and navigating to \\<ArcIMS_server>\Program Files\ArcGIS\ArcIMS\Samples\Tutorial Data
Cities are now be labeled using two lines with the Name and Population Fields. For example,