I’ve got an Xserve running, among other things, iChat server. To tidy things up, I wanted to have all users with a login of something like email@example.com rather than firstname.lastname@example.org, but after adding the extra domain into iChat server, iChat couldn’t log in as email@example.com
It turns out that it may be something to do with MD5 authentication.
The solution I used to fix it was:
Stop the iChat Server: sudo launchctl unload /System/Library/LaunchDaemons/org.jabber.jabberd.plist
Edit the file /etc/jabberd/c2s.xml with a text editor and remove <digest -md5/> option by commenting it out thus <!– <digest-md5/> –>
Restart the iChat server: sudo launchctl load /System/Library/LaunchDaemons/org.jabber.jabberd.plist
(Solution from Apple Discussions)