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The result from the Viewshed function is incorrect, it shows that many areas that should be visible are not visible.
This is a known issue with ArcGIS 8.1. The problem is related to the way input fields are handled when either the decimal delimiter is changed, or the regional settings are other than English (US) in the Regional Setting section of the system's Control Panel.
As a workaround, select all the input observer points, then run the Viewshed function.