It's works for me on Wine-cvs-20021219. Kazaa was broken for a time, but has now work for at least 2-weeks. I don't think the problem was in Wine, the solution was to load "winedefault.reg".
Yes I've got all that. Kazaa 2.0.2 (or is it 2.2... the new one anyway) calls ThunkTheTemplateHandle when running in Win98 mode. This function needs an implementation to work - a lot of people have similar problems if you read the compatability db and forums... I suspect their problem is also this function.
So getting a working implementation (and as I said, from my uneducated debugging it seems to be nothing much more than a wrapper function) into WINE would be very nice :)
Cheers, Ender