The blocks have been removed on 404 pages to improve the performance, but I agree it is annoying on a site which is not receiving lots of visitors and has no problems with that little bit of performance and a lot of usability lost. I have seen it before 5.7, there are plenty of people complaining about it on drupal.org if you search for blocks and 404. There is also a nice patch for d5 which does what seems the best solution to me: let the admin choose with a checkbox if blocks should be there or not on 404 pages: http://drupal.org/node/116895.
Hans
Hans Rossel KOBA Webdevelopment Kerkstraat 228 9050 Gent 09-334.52.60 0472-79.32.16 www.koba.be info@koba.be