# tail -2 /var/log/messages
Jun 6 13:50:24 server1 in.rlogind: connect from 127.0.0.1 (127.0.0.1)
Jun 6 13:50:24 server1 rlogind: pam_rhosts(rlogin:auth): denied access to root@localhost as root
I typed in the correct password in the above example.
The same problem occurs across all the servers I've upgraded to SLES 11 SP3.
Whether I have .rhosts (or hosts.equiv) or not, the problem happens.