Password server problem

[Robert Högberg]

Hi, I'm running Samba 1.9.18p10 on a Slackware 3.6 box and I would want
to use this computer as samba password server for other samba machines.

The machine runs with security = user, encryption = yes. This machine is
a WINS server too.

The samba clients that try to use the password server are running samba
2.0.5a and has encryption = yes, security = server and passwordserver =
servername set.

However the server rejects the password. This is a part from the samba
logs on the client..

[1999/12/05 22:46:56, 1] smbd/password.c:server_validate(1131)
  password server LILLEN rejected the password

LILLEN is the computer running samba 1.9.18p10 and acts as the password
server. After this the local smbpasswd file is searched but not found.
And after that the user gets logged in. And the user gets logged in even
though the password given is wrong. So the user can access his homedir
even though the wrong password was supplied. The test was run from a
Win98 machine that tried to connect to the samba client. 

Why does Lillen reject the password? Same password is used on both the
client and Lillen. Connecting to Lillen works just fine from the win98
machine. Rejects only faulty passwords.

If any more logs are necessary for diagnosis I'll try to provide them,
aswell as additional smb.conf settings.

Thanks in advance

Robert