First you should verify is there is any traffic from your client to the server.
Log in to the server and do as root:
Code:
tcpdump -pnni any host <client IP> and not port 22
the "and not port 22" part is only neccessary if you are connected via ssh from the machine you play from. Of course you have to install the tcpdump package.
Now fire up your client and look if you can see any traffic to your server.
Edit: I am not quite sure what happens since the public login fails too. Do I understand correctly and you are able to get to the character creation screen?