Hi,
The box did NOT run any firewall etc. The next day what we found was, it would NOT allow us to login at all. At the login prompt , when one tried to login as any user or even "su" it would just jump back to login prompt. We rebooted the machine with single user mode and found that no passwd /shadow files were tampered with.
[snip] Are you being prompted for the password?? Anyways, you'll have to do a 'rescue' here to log in. Do that using your distro cd or a boot floppy if you have one.
Once you've logged in, check if you have a file called '/etc/nologin'. If it exists delete it...that doesn't allow logins if it exists.
If it doesn't, check your 'syslog' to see about the failed login attempts. Maybe you get something there. ciao abhijeet