For the record: I was debugging a similar problem today (unable to log in from Moodle 1.9.11 to Mahara 1.3, getting
Curl error: 52: Empty reply from server
and tracked the issue down to the xml_parse() in mnet/xmlrpc/xmlparser.php. It was at shared hosting, PHP 5.2.13-pl0-gentoo with libxml 2.7.3. Despite from what is being said in the #45996 at bugs.php.net, this combination of PHP and libxml2 does not seem to work well.
Luckily, the attached patch for the Moodle side worked for me.
Most probably their Moodle server will have other problems wherever xml_parse() is used (course backups etc) but the SSO via MNet was top priority for us.