The subject behavior is the result of a missing screen saver file.

When the time-out occurs, nothing happens. When you try to logoff, nothing happens, but the Hour Glass may come on.

If you press CTRL+ALT+DELETE, instead of seeing the Windows NT Security dialog, the Unlock Workstation is presented. After entering your password and pressing OK, you can logoff or shutdown.

To fix the problem, restore the missing screen saver or configure a new one.