[Ilugc] telnet not working for a user group

[Buzz....... .......]

Hi,
       I am managing a server in BITS Pilani and am running into a
strange problem. We are using Red Hat Linux 9 (2.4.20-8 smp). The
problem is that one particular user group is able to telnet while the
other is not. The server closes the connection abruptly for them as
soon as they log on. The /var/log/messages file shows the following:

Mar 25 12:48:53 prithvi telnetd[5031]: ttloop: peer died: EOF
Mar 25 15:10:36 prithvi telnetd[7633]: ttloop: peer died: EOF
Mar 25 15:21:07 prithvi telnetd[7843]: ttloop: peer died: EOF
Mar 25 15:22:56 prithvi telnetd[7905]: ttloop: peer died: EOF
Mar 25 15:47:25 prithvi telnetd[8360]: ttloop: peer died: EOF
Mar 25 15:47:30 prithvi telnetd[8361]: ttloop: peer died: EOF
Mar 25 16:54:10 prithvi telnetd[9518]: ttloop: peer died: EOF
Mar 25 17:08:40 prithvi telnetd[9898]: ttloop: peer died: EOF
Mar 25 17:14:57 prithvi telnetd[9991]: ttloop: peer died: EOF
Mar 25 17:35:22 prithvi telnetd[10489]: ttloop: peer died: EOF
Mar 25 18:29:56 prithvi telnetd[11537]: ttloop: peer died: EOF

The other user group however is able to telnet fine. One interesting
point is that all are able to ssh, ftp etc. properly. Further this
problem occurs only if telnet is started via xinetd. If I start
telnetd (telnetd -a off -debug)manually, after stopping xinetd; in
debugging mode, then all are able to telnet fine with no errors
reported. What could be the problem?

The contents of /etc/xinetd.d/telnet file are

# default: on
# description: The telnet server serves telnet sessions; it uses \
#       unencrypted username/password pairs for authentication.
service telnet
{
        disable = no
        flags           = REUSE
        socket_type     = stream
        wait            = no
        user            = root
        server          = /usr/sbin/in.telnetd
        log_on_failure  += USERID
}

The installed packages are as follows
telnet-server-0.17-25.1.legacy
telnet-0.17-25.1.legacy
xinetd-2.3.11-1.9.0

Please help me ASAP as the server is being used for a mission critical
purpose here.

Regards,

Preetish
BITS, Pilani