Normal user ssh access not working

RHEL 5.7 , normal users are not able to login. Even after recreating users.
We are getting following error message while trying to ssh as normal user
 ssh abcd@10.xx.xx.xx

Connecting to 10.xx.xx.xx:22...
Connection established.
Escape character is '^@]'.

WARNING! The remote SSH server rejected X11 forwarding request.
Last login: Tue Apr 24 19:33:58 2012 from 10.xx.xx.x2
Could not chdir to home directory /home/xxxx: Permission denied
/bin/bash: Permission denied

Connection closed by foreign host.

we are getting below message in /var/log/secure

Apr 24 19:33:58 test123 sshd[8655]: channel_by_id: 0: bad id: channel free
Apr 24 19:33:58 test123 sshd[8651]: pam_unix(sshd:session): session closed for user xxxx
Apr 24 19:38:02 test123 sshd[8916]: Accepted password for anil from 10.xx.xxx.xxx  port 52913 ssh2
Apr 24 19:38:02 test123 sshd[8916]: pam_unix(sshd:session): session opened for user xxxx by (uid=0)
Apr 24 19:38:02 test123 sshd[8920]: channel_by_id: 0: bad id: channel free
Apr 24 19:38:02 test123 sshd[8916]: pam_unix(sshd:session): session closed for user xxxx