there is a database conversion utility that you can run to convert your old catalog/db files to the new binary format. also i would install MP3 (maintenance pack 3) for sure.
If you don't specifiy a particular login for the networker client service, make sure that you installed it as local or domain admin on the server. If you've given a particular user logon rights in the properties of the service, make sure that that user is part of the backup operators group, or...
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