I know this has been a hot topic on the discussion groups, and a frustrating one for users who are ready to pull their hair out... well, pull no more, the fix has been posted!
Autodesk.com under Updates and Service Packs
This hotfix will correct a problem where cut and paste operations fail in drawings that are saved in AutoCAD® 2000 file formats.
If you open or create a file in AutoCAD 2007 and save it in AutoCAD 2000 file format and then open the drawing in AutoCAD 2000, 2000i, or 2002 and attempt to cut, copy, and paste objects within the drawing, then the cut, copy, and paste operations will fail. This Hotfix resolves this issue.
Edit: ID: DL7450124 new URL.