I had EXACTLY that error when using a cisco card talking to a cisco AP1100 and freeradius. I am on XP and not W2K so YMMV but... the problem is the cisco ADU (Aironet Desktop Utility). If you are using that to configure your card it just won't do PEAP correctly. If you switch over and set the "Use windows to configure..." check box it will work. At least on XP SP2 (and SP2 is needed, as I understand it, to do PEAP)
I had a talk with cisco tech support and they claimed it wasn't their problem, they have run it with PEAP. Wouldn't work for me in this setup tho, had to go with windows config. Bob - List info/subscribe/unsubscribe? See http://www.freeradius.org/list/users.html