Ok, I solved my problem.

What it was was an older version of BCP.EXE installed on the system by another program.

After disabling the older version, it ran fine.

I have the same problem. The sql server is local. I can ping it fine. the error message I get is CTLIB Message: - L6/O8/S5/N3/5/0: ct_connect(): directory service layer: internal...