Hi

Based on my test with Window XP+SP1 to access to a folder on Windows 2000
Server + SP4, it can not get the notification.
Here is my test code.
using System;
using System.IO;
using System.Diagnostics;
namespace FWT
{
    public class Watcher
    {

        public static void Main()
        {

            string[] args = System.Environment.GetCommandLineArgs();

            // If a directory is not specified, exit program.
            if(args.Length != 2)
            {
                // Display the proper way to call the program.
                Console.WriteLine("Usage: Watcher.exe (directory)");
                return;
            }

            // Create a new FileSystemWatcher and set its properties.
            FileSystemWatcher watcher = new FileSystemWatcher();
            watcher.Path = args[1];
            /* Watch for changes in LastAccess and LastWrite times, and
              the renaming of files or directories. */
            watcher.NotifyFilter = NotifyFilters.LastAccess |
NotifyFilters.LastWrite
                | NotifyFilters.FileName | NotifyFilters.DirectoryName;
            // Only watch text files.
            watcher.Filter = "*.txt";

            // Add event handlers.
            watcher.Changed += new FileSystemEventHandler(OnChanged);
            watcher.Created += new FileSystemEventHandler(OnChanged);
            watcher.Deleted += new FileSystemEventHandler(OnChanged);
            watcher.Renamed += new RenamedEventHandler(OnRenamed);

            // Begin watching.
            watcher.EnableRaisingEvents = true;

            // Wait for the user to quit the program.
            Console.WriteLine("Press \'q\' to quit the sample.");
            while(Console.Read()!='q');
        }

        // Define the event handlers.
        private static void OnChanged(object source, FileSystemEventArgs e)
        {
            // Specify what is done when a file is changed, created, or deleted.
            Console.WriteLine("File: " +  e.FullPath + " " + e.ChangeType);
        }

        private static void OnRenamed(object source, RenamedEventArgs e)
        {
            // Specify what is done when a file is renamed.
            Console.WriteLine("File: {0} renamed to {1}", e.OldFullPath, e.FullPath);
        }
    }
}

Also I suggest you try to apply the recently Service Pack before test.
From the Document below, Windows 2000 may lost packet when it has not
install SP2 or high and the VM may have poor performance in contrast with
physically machine.

Windows NT 4.0:  The limit in this situation is 4 KB.

Windows 2000:  Clients that attempt multiple simultaneous long-term
requests against a server, for example change notifications, should be
running Service Pack 2 or higher. See Knowledge Base article Q271148 for
more details.
Windows Me:  There is similar functionality available with the
FindFirstChangeNotification function.

ReadDirectoryChangesW
http://msdn.microsoft.com/library/default.asp?url=/library/en-us/fileio/fs/r
eaddirectorychangesw.asp

The FileSystemWatcher will use the API above.

Best regards,

Peter Huang
Microsoft Online Partner Support