I was having a similar problem with adminsitrative logins.
I am running moodle 1.1.1 on a Windows 2K Server (SP4) with IIS 5, MySQL v323, and PHP 423. Anytime I tried to login in as administrator (only user in database aside from guest), I was simply cycled back to index.php with no successful login.
At fist I thought this was might be a browser/cookie incomatbility, but I get the same results under Mozilla as I do IE.
I ensured that I am not using secure forms. Still no luck.
Then, I checked my php.ini and I noticed that session.auto_start and session.use_cookies were off. I enabled them, restarted IIS, and *poof* all was happy.
This might want to be inserted into the faq.