UDP time requests to RH Linux systems (including 4.2, 5.0
and 5.1) fail. The symptoms are that no time is returned and
inetd reports "time/udp server failing (looping), service
terminated".

This turns out to be due to an error in inetd.conf.  The
time daemon in.timed is not suitable for handling udp
requests; however inetd provides an internal handler.
Therefore replacing the line:
time   dgram   udp     wait    nobody  /usr/sbin/tcpd
in.timed
with:
time    dgram   udp     wait    root    internal

gives the correct behaviour.

Peter