I think you can upgrade the MDW file to the new file format also, which would eliminate your problem entirely. I don't know how it's done, but I am 90% sure it's possible, and if true, this will solve your problem right away. Search comp.databases.ms-access for expert advice on this subject, I'm sure I've read something about this there.
Also if you actually have to get this working, I highly recommend you get the group permissions working. Yes, I managed to make it work properly in Access 97 myself, so I know it's possible. It's certainly easier (and less error-prone) than setting user permissions for 200 users.
My third recommendation is that you give up and dump Access security instead of upgrading it to the new version. I figure: it's 100% crackable, thus, why bother with the pretense of security?