Thank you guys.
I tried changing the .ini as Frankell suggested. Unfortuantely, I had trouble finding the folder:
c:\documents and Settings\[user]\application Data\stardock\objectDock
... is actually an empty folder! Maybe this is a leftover from when I had Object Dock 1.6? Pretty misleading.
So I installed Object Dock 1.9 like Wizard1956 suggested. Unfortunately, the result was it overwrote all my settings! I had labels back, but all my settings in 1.9 and 2.0 were reverted to default (options, icons, background, docklets, everything). Appaled, I proceeded to immediately uninstall 1.9. But then I had a eureka moment! On the uninstall options, it showed a list of files it wanted to delete including settings backups! For example settings.old ...
And then I finally realized, from this, the real settings folder is:
C:\documents and Settings\[user]\Local Settings\Application Data\Stardock\ObjectDock
And it had .old files for all my old settings. So I was able to restore them and fix the Labelsdisabled=1 problem and I installed TransparentFont on WinCustomize for an elegant way to change labels on and off.
It got sticky for a few moments, but it's a happy ending! Thank you guys!