I created new users on the 2 servers that I have using "useradd" and "passwd" and this are the uname -a reply from these:

Linux serv1.mysite.org 2.4.7-10smp #1 SMP Thu Sep 6 17:09:31 EDT 2001
i686 unknown

Linux serv2.mysite.org 2.6.9-42.0.3.ELsmp #1 SMP Fri Oct 6 06:21:39 CDT
2006 i686 i686 i386 GNU/Linux

Now using SSH Secure File Transfer Client i am able to login into my
server 2 but not into the server 1.
Is this because of the kernel that server 1 is running or is it because
of some other reasons??
I have checked and the home directory is created with appropriate
permission.

On checking the /var/messages files i noticed that when i try to login
into serv1 it gives setuid() error:
serv1 login -- thecoolone[18047]: LOGIN ON pts/0 BY thecoolone
serv1 login -- thecoolone[18048]: setuid() failed

AND
On serv2 it /var/messages is
serv4 sshd(pam_unix)[6692]: session opened for user thecoolone by
(uid=0)

Please help me out here. I am still learning the ropes so to speak.

Thank you in advance.