MikTeX 1.20e, as distributed, ceased to work as from 1 December 2000. Since 1.20e is not actively being developed, the 2000/06/01 release of LaTeX was not integrated into the distribution. Since LaTeX (prior to 2000/06/01) believed it should be upgraded every six months, the format making code sees a version that is nominally 18 months (three versions) old, and refuses to proceed.
The solution is to be found by reading http://www.miktex.org/1.20/important.html; in that page, there is a link to a replacement latex.zip for the distribution, and instructions for installing it.
The problem has been fixed in versions of MikTeX released since 23 January 2001.