The system log and rsh documentation incorrectly indicates that you need to add the argument '-h' to your xinetd configuration. This was true for earlier versions, but in RH7.2 PAM will check your /etc/securetty file for an 'rsh' entry instead.
Simply add 'rsh' to your '/etc/securetty' file and it should work as expected. Keep in mind that you still need to create a proper '.rlogin' file as per the documentation.
