Original submitter of the report: <solar@ideal.ru>
The [exploit] shellcode is a bit different from the usual one:
It might be possible to exploit this hole remotely, if one would use a patched telnet client which would allow exporting large environment variable values. The overflow would happen at /bin/login startup then (somewhat like the famous LD_PRELOAD exploit, but an overflow). I'm not sure of that though, there might be some restrictions on environment variables in telnetd.