The freeradius-pam-conf file in the SRPM which gets installed as /etc/pam.d/radiusd uses password-auth instead of system-auth. The change from system-auth to password-auth was deliberate in Fedora and RHEL6. Unfortunately the Fedora/RHEL6 version of the file was applied to RHEL5. The RHEL5 version of the file needs to change password-auth back to system-auth.
This bug should be addressed by rebasing freeradius2 in a future RHEL5 update.
Updated freeradius-pam-conf and spec file. Waiting until new upstream release to rebuild for RHEL5.8 in which FreeRADIUS2 will be a rebase.
Since the problem described in this bug report should be resolved in a recent advisory, it has been closed with a resolution of ERRATA. For information on the advisory, and where to find the updated files, follow the link below. If the solution does not work for you, open a new bug report. http://rhn.redhat.com/errata/RHBA-2012-0196.html