The compatibility mode doesn't work in w2k, as far as I know.
Using vmware would be one option. Are you sure there are no w2k software that could format a floppy into 1.72MB? A quick google search with "1.72mb format windows 2000" (minus the "") came up with this possibly useful link:
http://www.sharewarejunction.com/inf...ProductID=3212
Although, one other page about the same program said "1.72MB format is not compatible with Windows NT" so you might be out of luck anyway. Still, the same page states that " The DMF (1.68MB) format is often used for distribution floppies under Windows 95/98 and Windows NT. "