Server is obviously being connected to, but the client shows no connection

I launch the server and see the following output:

[krisoerp@sahtel krisoerp]$ ./openerp-server.py
[2010-03-08 18:49:23,472] DEBUG:psycopg2:installed. Logging using Python logging module
[2010-03-08 18:49:23,476] INFO:server:version - 5.2dev
[2010-03-08 18:49:23,476] INFO:server:addons_path - /home/krisoerp/krisoerp/addons
[2010-03-08 18:49:23,476] INFO:server:database hostname - 127.0.0.1
[2010-03-08 18:49:23,476] INFO:server:database port - 5432
[2010-03-08 18:49:23,476] INFO:server:database user - openuser
[2010-03-08 18:49:23,476] INFO:objects:initialising distributed objects services
[2010-03-08 18:49:23,616] INFO:web-services:starting HTTPS service at 0.0.0.0 port 8069
[2010-03-08 18:49:23,616] INFO:web-services:Registered XML-RPC over HTTP
[2010-03-08 18:49:23,617] INFO:web-services:starting NET-RPC service at 0.0.0.0 port 8070
[2010-03-08 18:49:23,617] INFO:server:Starting 2 services
[2010-03-08 18:49:23,617] INFO:web-services:the server is running, waiting for connections...

I then connect using the client and see this:

[2010-03-08 18:51:05,578] DEBUG:db.connection:create cursor to "template1"
[2010-03-08 18:51:05,578] DEBUG:db.connection_pool:ConnectionPool(used=0/count=0/max=64)
[2010-03-08 18:51:05,578] DEBUG:db.connection_pool:Borrow connection to host=127.0.0.1 user=openuser password=openpassword dbname=template1
[2010-03-08 18:51:05,578] DEBUG:db.connection_pool:ConnectionPool(used=0/count=0/max=64)
[2010-03-08 18:51:05,578] DEBUG:db.connection_pool:Create new connection

Client proclaims: "Could not connect to server !" That's not true. The server obviously received a connection as evident from the server's log messages.

What could be wrong?

Oh and this is the latest version from the source repository. I've been updating every now and then and it seems to have broken a couple of weeks ago. (It's a soon-to-be production server, we're still just setting things up and didn't act when we first noticed it was broken.)