My buddy just had this happen to his 01 and it seems like this is common for that year. You have to split the cases and I cant imagine a more difficult or time consuming repair for a quad. My buddy is giving it a shot since he didnt want to part it out. Theres a site called raptortranny.com that details everything and a search should turn up something since this was common on the 01 660s. Ifyour quad is a beat up wreck time to upgrade, if its in decent shape I wish you luck in the repair. If my buddy puts his back together he will be my hero as he has boxes of labeled parts in his garage and I know I couldn't do it. Great learning experience if you have time and patience.
look at raptortranny.com, theres a writeup to upgrade the 01 to the 02, if you look thru it it'll show you how to assemble the entire trans/motor and how to assemble the gear shafts. excelent writeup with good pics and part numbers. Not especially difficult, just a lot of parts laying around.
got the exact same problem, the 2nd gear is blowed, not the teeth, but the side square-shaped teeth are which get blowed. since they are only 3 to manage the power, thus 02-05 trannys got 4 side squared teeth to handle the power. i got a 03 tranny form ebay 6 months or so ago. good luck on your tranny upgrade