Morgan Stanley (MWD) is shaping up as a major stumbling block to a settlement of Wall Street's troubles with the nation's regulators, sources tell The Post.

The white shoe firm is adamant that it did nothing wrong, but regulators aren't buying it.

"You can hardly fault Morgan Stanley for dragging their feet," said Craig Woker, stock analyst at independent researchers Morningstar Inc. "They've been the most argumentative battlers about this issue from the beginning when they got Mary Meeker's lawsuits thrown out."

Meeker, Morgan Stanley's well-known Internet analyst, hasn't come under the same fire as Merrill Lynch's Henry Blodget or Salomon Smith Barney's Jack Grubman.

Blodget and Grubman left their respective firms this year as regulators focused on conflicts of interest between their research efforts and their company's investment banking activities.

Wall Street's biggest firms are expected to respond to the Securities and Exchange Commission by Wednesday, commenting on proposed reforms that were outlined by the SEC and New York Attorney General Eliot Spitzer in Washington last week, at a first-ever face-to-face meeting with the firms.

The regulators called for a panel to oversee independent research offered to individual investors as well as the banks' own analyst research - a second opinion of sorts, said a regulator.

The bill for the reforms reportedly could top $1 billion over the next five years.

But while Morgan Stanley's representative at last week's pow-wow was said to have fawned over regulators that day, behind the scenes the firm is singing a different tune, according to witnesses.

"We don't have any problems and we don't think this [settlement] is a good idea," Morgan Stanley officials told regulators, a source close to the probes said.

"There's no doubt that they [Morgan Stanley] are no better than the rest," Woker said. "It's just . . . that there hasn't been any evidence so far to stick against Morgan Stanley."

Other top brokerages have told regulators they will go along with the proposal, with some tweaking, as long as all the firms have to comply.

A Morgan Stanley hold-out could rupture the settlement, sources said.

Moreover, the strategy could backfire and leave Morgan more vulnerable.

"Morgan's strategy all along is ‘we have to fight this and keep fighting it," said Woker. "So far it's working. But as soon as you lose with that strategy you lose much bigger."

Sources at the meeting recalled that all the firms were in agreement that reforms were indeed needed. Ten top brokerages were represented at the meeting, and there are 12 brokerages under investigation, sources added.

The SEC and the Attorney General's office declined to comment.

Morgan Stanley officials declined to comment. But sources familiar with the discussions there said: "haggling continues over details."