policy-1.8-18 avc: denied {search} for pid=2331 exe=/bin/login name=root dev=hda3 ino=blah scontext=system_u:system_r:local_login_t tcontext=system_u:object_r:default_t class=dir Looks like /root gets the wrong context, although it's not something that gets relabeled with setfiles.
Note that this causes: No directory /root! Logging in with home = "/"
fixed in policy-1.9-1 and updated policycoreutils