The script /etc/rc.d/init.d/network has a bug in it such that IP forwarding is always disabled after network restart or system reboot. Examining the script it always places a zero in /proc/sys/net/ipv4/ip_foward if its not zero already. This means IP forwarding is ALWAYS disabled after a reset or network restart. Editing the script or taking the network script from RH 6.0 fixes the problem.
This is an initscripts problem. Changing component ...
If you restart the network, it will re-run 'sysctl -p /etc/sysctl.conf'; this will reset IP forwarding if desired.