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Direct connections from an ArcGIS 10 client to an ArcSDE 9.3.x or 9.2 geodatabase in SQL Server 2000 fail with one of the following error messages:
ArcSDE 9.3.x is the last release to support SQL Server 2000. Because direct connections use ArcSDE libraries in the client software, direct connections from ArcGIS 10 clients use ArcSDE 10 libraries. Since ArcSDE 10 does not support SQL Server 2000, the connection fails.
Use an ArcSDE service connection from the ArcGIS 10 client to the ArcSDE 9.3.x geodatabase. The service connection uses the ArcSDE libraries on the server, which will be at a release (9.2, 9.3, or 9.3.1) that supports SQL Server 2000.
Alternatively, to use direct connections to the geodatabase, upgrade the SQL Server database to at least SQL Server 2005.