This problem came about WIN2K settings were too tight. is there any doc etc that detail how to lock down NT without causing problems to SQL ?
ok, finally an answer to this.
Go to Local security policy / Account policies / password policy / Passwords must meet complexity requirements was enabled .
set this to disabled.
plus in the network config utilty in the named pipes \\servername\pipe\sql\query was changed to \\.\pipe\sql\query
these changes seemed to have fixed the problem.