If you configured the Interactive logon: Require smart card security in the Local Security Policy of the server, and subsequently restarted the server, this problem will occur if the smart card reader is not installed on the server, or it is not functioning/configured properly.

To workaround this behavior, log on using a Terminal Services session, from a computer running Windows XP, or later, that has a smart card reader installed, and resolve the problem.

If Terminal Services is not configured, use another Windows Server 2003 computer to enable it:

WMIC /NODE:"ServerName" /USER:"DomainName\Administrator" /PASSWORD:"Password" RDTOGGLE WHERE ServerName="ServerName" CALL SetAllowTSConnections 1