This article is from the AmiTCP/IP FAQ, by Mike Meyer with numerous contributions by others.
The most likely reason is that you are using SLIP and your provider is using CSLIP, or vice versa. Traceroute uses the same packet type as ping, an ICMP packet. These aren't compressed on a CSLIP line, and so work properly. Other IP packets will be compressed, and will fail.
 
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