Try this:

create procedure [proc1] @cursor_name cursor varying output

as

declare @string nvarchar(1000)

set @string = 'declare cursor_name cursor for

select blah from foo ' + char(13)

if len(@p_vcwhere) <> 0 set @string = @string + ' where ' + @p_vcWHERE

exec sp_executesql @string

This will return a cursor.

Jeremy.