Which exact MyODBC version are you using?
I've seen another case where using the previous 5.1.8 release instead of the current 5.1.9 fixed the problem, so it seems as if 5.1.9 broke something for Win2K at least.
The previous 5.1.8 is available in the MySQL download archive:
http://downloads.mysql.com/archives.php?p=mysql-connector-odbc-5.1&v=5.1.8
PS:
http://www.sydown.net/repair-error-127-mysql-how-to-fix-error-127-mysql also hints toward a spike in "error 127" cases since around beginning of October ...
--
Hartmut Holzgraefe, MySQL Regional Support Manager EMEA
Sun Microsystems GmbH, Sonnenallee 1, 85551 Kirchheim-Heimstetten
Amtsgericht Muenchen: HRB161028
Geschaeftsfuehrer: Thomas Schroeder, Wolfgang Engels, Dr. Roland Boemer
Vorsitzender des Aufsichtsrates: Martin Haering