From Thomas Robb
I have found the problem. For some reason, when I restored a course to my new 1.8, the guest userid from the backup course replaced the default one with userid = 2. I ended up with the guest userid = 2032, and more importantly, the mnethostid field was blank rather than containing the default value of "1". This caused the "login_use" function in auth/plugin/auth.php to fail.
So, perhaps there is a separate bug that needs to be filed. Restoring a course should NOT touch either userid 1 or 2!