First: I am using SQL 2008 and not SQL 2000, so maybe it's not representative.

Do determine if the combination of the executable and the arguments field work correctly, I have created a new package and added a "Execute Process Task". I've enter "C:\Windows\Notepad.exe" as the executable and entered the filename (incl. full path) of a text file as argument.

I was able to execute the package (debugging modes) ant it started notepad with the file I entered in the argument field.

Can you try and see if above scenario succeeds in your situation?