Thanks all, I found the way to correct this problem on another forum:
The cause of this is the sqlservr.exe and sqlsort.dll in the MSSQL7BINN directory are still on a hotfix build. When the upgrade wizard tries to stop SQL 7.0 and tries to start SQL 2000 it checks the version on the sqlservr.exe and sqlsort.dll. It is unable to recognise the hotfix versioning and therefore SQL 2000 stops. SQL 7.0 which has already been stopped by this point ends up corrupted.
The following options are available to recover from this problem
a) Pull out the hotfix and go back to Sp3 on the machines where upgrade has not been attempted
b) On the machines that upgrade has been attempted, rename the 4 files that are part of the hotfix: sqlservr.exe, sqlservr.pdb, sqlservr.dbg, sqlsort.dll. Copy the sqlservr.exe and sqlsort.dll from the SQL 2000 install point to the MSSQL7BINN. Re-run setup and allow it to resume from where it stopped before.
c) Upgrade to Sp4 prior to upgrading the machine to SQL 2K.
This error does not seem to be documented anywhere. It is not on Technet and I only got the explanation through a contact in Microsoft